Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

SCOTTISH WIDOWS' FUND AND LIFE ASSURANCE SOCIETY BILL

STANDARD LIFE ASSURANCE COMPANY BILL

Orders for Third Reading read.

To be read the Third time upon Thursday.

Oral Answers to Questions — SOCIAL SERVICES

London Hospitals (Advisory Group)

Mr. Neil Thorne: asked the Secretary of State for Social Services whether, further to his reply to the hon. Member for Ravensbourne (Mr. Hunt)Official Report,

The Secretary of State for Social Services (Mr. Patrick Jenkin): I have asked the London advisory group to give priority to advising on the restructuring of the National Health Service in London, and on the pattern of acute and specialist hospital services in the light of the reports of the London health planning consortium.

Mr. Thorne: Will that not be too late for London university to take into account with the Flowers report, the consideration of which must be completed by July? If that is the case, will my right hon. Friend be prepared to allow Westminster hospital to continue until the advisory group's report is available and can be taken into consideration?

Mr. Jenkin: As my hon. Friend knows, there is a later question on the Order Paper about Westminster hospital. I gain the impression that my hon. Friend may not appreciate the relationship of the London advisory group with the Flowers report, which is concerned with medical schools. The Flowers report is a report to London university. It will be for the university to reach conclusions on the proposals put forward by Lord Flowers. That will be one of the inputs into the London advisory group, which will then advise me on the best way in which to deal with the services in London, in the light of all the facts.

Mr. Orme: The Secretary of State said that the advisory group's report would deal with restructuring. That will involve medical staff, not least nurses, many thousands of whom are employed within the London area. May I take this opportunity to ask the right hon. Gentleman when we will have a report on the recent negotiations with the nurses about their pay, and the recent meeting——

Mr. Speaker: Order. The right hon. Gentleman has stretched the question beyond measure.

Mr. Orme: On a point of order, Mr. Speaker. I was making the point that the London nurses, of whom there are many thousands, will be affected by any pay structure that is decided——

Mr. Speaker: Order. That may be so, but there should be a question on the Order Paper on that matter. This question does not deal with it.

Christmas Bonus

Mr. Cryer: asked the Secretary of State for Social Services if he will increase the 1980 Christmas bonus payment for retirement pensioners to make up any shortfall in pension increases.

The Minister for Social Security (Mr. Reg Prentice): The question of making good a shortfall in the November 1980 uprating would have to be considered if it arose. But an increase in the 1980 Christmas bonus would not be an appropriate way to make good any shortfall.

Mr. Cryer: Is it not true that the Department has legislated to create a 54-week year, which means that there


will be a fortnight's delay in the payment of the increased pension, which in turn means that there will be a shortage in payment to a married couple, for example, of over £12? Does the Minister agree that if he broke into a pensioner's house and robbed him of £12 he would rightly be sent to gaol? Is it not legislative robbery from millions of pensioners that the Minister and his cronies are putting into effect?

Mr. Prentice: No, Sir, it is nothing of the kind. It is a necessary reining back of public spending, to fight inflation. In fighting inflation we are doing the best possible service that we can for the pensioners of Britain.

Mr. Garel-Jones: Will my right hon. Friend confirm that the Christmas bonus, in spite of its extreme unpopularity among Opposition Members, is a popular and much appreciated benefit? Will he assure the House that he will bear in mind that the value of the bonus has not changed from £10 since its inception, and that as soon as economic circumstances permit he will seek to increase it?

Mr. Prentice: I agree with my hon. Friend. The pensioners of Britain will be aware that one of the first measures brought forward by the Government when they took office was to make the Christmas bonus a permanent payment.

Mr. Barry Jones: Does the Minister agree that he has adopted a miserable device with which to diddle vulnerable pensioners?

Mr. Prentice: No, Sir.

Mr. Peter Bottomley: Will my right hon. Friend tell us for how many years the Christmas bonus was not paid by the Labour Government, and what that represents?

Mr. Prentice: For two years, which happened to be early in the Parliament, and they took care to start paying it again as the election approached.

Mr. Crowther: Is the Minister of State saying that an appropriate way to rein back public expenditure, as he calls it, is to rob old-age pensioners? Is it not an example of almost incredible meanness, even for this Government, to make the pensioners pay for their Christmas bonus?

Mr. Prentice: No. I do not accept the word " rob ". These matters were fully debated during the long debates on the Social Security Bills, Nos. 1 and 2. We are hearing the usual performance of the Labour Party fighting yesterday's battles.

Social Security (No. 2) Bill

Mr. William Hamilton: asked the Secretary of State for Social Services what representations he has received in the last month from outside organisations on the provisions of the Social Security (No. 2) Bill; and what steps he intends to take to satisfy their requests for amendments to the Bill.

Mr. Patrick Jenkin: I have received representations on the Social Security (No. 2) Bill from 23 organisations, many of which were concerned about the impact of the Bill on the long-term sick. I have already undertaken that, subject to the availability of resources, invalidity benefit and unemployability supplement will be realigned with retirement pension when they are brought into taxation. I believe that this and the Government's acceptance of the amendment to clause 3 of the Bill proposed by my hon. Friend the Member for Exeter (Mr. Hannam) will have helped to allay the fears of the organisations concerned.

Mr. Hamilton: Does not the right hon. Gentleman feel thoroughly ashamed of a Bill that does not have the support of one voluntary organisation that is interested in these matters? Why did he refuse to meet these organisations whilst the Bill was going through Committee, as the organisations told us was the case? What further progress has been made in his consultations with the NUM and the NCB so far as the Bill affects them?

Mr. Jenkin: First, I believe that the Government were right to have the courage to bring forward the necessary measures to bring public expenditure under control. I have not refused to meet organisations. I have now met every organisation that has asked for a meeting. Some of those which asked earlier had meetings with my officials, and in view of what they heard, and the representations that they made, they did not feel it right to ask for another meeting.
The National Coal Board and the National Union of Mineworkers schemes


are matters for my right hon. Friend the Secretary of State for Energy.

Mr. Paul Dean: I accept that the Social Security (No. 2) Bill represents a sensible allocation of priorities in difficult circumstances, but will my right hon. Friend assure the House that it is the Government's firm intention, as soon as resources become available, to resume progress in providing both cash benefits and services for the disabled?

Mr. Jenkin: I am grateful to my hon. Friend for his kind words. The Government's whole strategy is designed to create an economy that will provide the resources to enable us not only to raise our standard of living generally but to afford a proper level of social services. The more we are successful in that object, the more quickly we shall be able to resume the kind of benefits for these people that we want to see.

Mr. Ennals: Has the Secretary of State had representations from organisations representing war pensioners? Is he aware that the announcement by the Minister for Social Security over the weekend of an increase of 16½ per cent. for war pensioners in November will be viewed by both war pensioners and organisations representing them as an absolute betrayal of commitments by successive Governments to give proper protection to those who were wounded as a result of war service? Is he aware that 16½ per cent. in November will be much less than the rate of inflation? Is this not grossly unfair to war pensioners, apart from any others?

Mr. Jenkin: My right hon. Friend was well received by the war pensioners' organisations which he met in Scotland over the weekend. The right hon. Gentleman implied that we were in bad odour, but that is not so. My right hon. Friend was well received.
Recent rates of inflation are not expected to continue. We expect a fall in the rate of inflation in the coming months. The forecast at the time of the Budget was of a 16½ per cent. increase in prices between November 1979 and November 1980, the uprating date for the increase. On that basis, an increase of 16½ per cent. in war pensions, as in other long-term benefits, will restore the value of those benefits.

Mr. Orme: Is the Secretary of State aware that as people become knowledgeable about the Social Security (No. 2) Bill they become appalled that the earnings-related benefits of the sick, the unemployed and those suffering from industrial injury are to be drastically affected? What has the right hon. Gentleman got to say about bringing those benefits into line in 1982?

Mr. Jenkin: As I said in the debates on clause 4 of the Bill, if, after the earnings-related benefit has been phased out under the Bill, additional resources become available for the improvement of social security generally, a decision will have to be taken whether those resources should be used to restore the earnings-related benefit, but many people could point to higher priorities than that.

Pensions

Mr. Hooley: asked the Secretary of State for Social Services what is the approximate saving in public expenditure by delaying for two weeks beyond the normal date the payment of the annual increase in pensions.

Mr. Stallard: asked the Secretary of State for Social Services what representations he has received from the National Federation of Old Age Pensions Associations about the contents of the Social Security (No. 2) Bill.

The Under-Secretary of State for Health and Social Security (Mrs. Lynda Chalker): If the rates of benefits proposed for the week commencing 24 November were to be paid two weeks earlier, the additional expenditure in 1980–81 would be about £125 million, of which about £65 million would be on retirement and supplementary pensions.
As to representations from the National Federation of Old Age Pensions Associations, it wrote to my right hon. Friend about the date of this year's uprating, but not about the contents of the Social Security (No. 2) Bill.

Mr. Hooley: Is the Minister aware that this is a peculiarly squalid manoeuvre, even by the standards of this Government? Is it now the Government's intention to calculate year by year a 54-week year for pensioners, so that eventually their uprating arises in the year after next?

Mrs. Chalker: The answer to the second part of the hon. Gentleman's question is " No ". Under the Social Security Act 1980 the uprating cannot be later than the week commencing 23 November 1981. Therefore, the situation envisaged by the hon. Gentleman is avoided.

Mr. Garel-Jones: Will my hon. Friend confirm that, despite the fact that the increase is to be delayed, it is the greatest increase ever given to old-age pensioners by any Government?

Mrs. Chalker: Yes, in cash terms, it it the greatest increase. I should point out that the increases are still a substantial and welcome help to pensioners.

Mr. Frank Allaun: Will the Minister confirm her colleague's admission a few minutes ago that this is a deliberate intention to reduce public expenditure? Is she aware that this saving is exactly one-twentieth of the increase in arms spending this year—in a single year?

Mrs. Chalker: I should point out that an unintentional effect of the provisions of the Social Security Act 1975 has been that the date for increasing benefits has been creeping forward. Any responsible Government would have had to tackle that matter. That is the cause of one week's delay. The second week's delay is to reduce public expenditure.

Mr. William Hamilton: Does the hon. Lady recollect that in Committee she admitted that this robbing of old-age pensioners was designed to cut public expenditure? Will she now say that she is thoroughly ashamed of what she is doing?

Mrs. Chaiker: As I said to the hon. Member for Salford, East (Mr. Allaun), one week's delay in the uprating is to prevent the creeping forward, which any responsible Government would have had to deal with. I have said that the second week's delay in the uprating is, indeed, to hold back public expenditure.

Renal Dialysis

Mr. Dalyell: asked the Secretary of State for Social Services what are the most recent figures he has conveniently available for the costs of a patient on renal dialysis; and what figures he has conveniently available for the costs of a kidney transplant.

Mr. Patrick Jenkin: The capital cost of a kidney machine and associated equipment is approximately £6,000. The annual running costs for a patient on dialysis can be as much as £8,000 if he is treated at home, and £12,500 if he is treated in hospital. The cost of a kidney transplant and subsequent treatment during the first year varies greatly according to the type of treatment and the success of the operation, but it is likely on average to be about £5,000.

Mr. Dalyell: Do those figures mean that if significantly more matching tissue was available that would shorten waiting lists, ease suffering, and help the scarce resources of the Health Service?

Mr. Jenkin: That is right. I hope that more and more people will use the new kidney card system that was launched last week by my hon. Friend the Minister for Health so that in the event of an accident it will be possible for their kidneys to be made available for transplant purposes. These cards are now widely available, and I hope that the hon. Gentleman's persistence in this mattter—which I greatly applaud—will lead the public to make more and more use of them.

Mr. Alfred Morris: Is the Minister aware of the estimate that over 1,000 people will die this year from kidney failure, simply because of inadequate staffing? What urgent action is the Secretary of State taking to tackle this problem? If the Government can give huge sums in tax cuts to the fit and fortunate, how can they possibly deny a lifeline to people who are desperately ill and in need?

Mr. Jenkin: We should not be too apologetic for the progress that has been made in recent years to enable additional numbers of people to receive the benefit of renal services. Between 1971 and 1978 the number of patients starting treatment annually rose from 589 to 1,156, and the number of transplants, including live donors, rose from 318 to 930. The number of patients on renal replacement therapy—functioning transplants, kidney machines, peritoneal dialysis—rose from 1,816 at 31 December 1971, to 5,273 at 31 December 1978. That was an average rise of about 16


per cent. a year. If we are to do more—and we all want to do better—the nation must first earn the resources to pay for it. That is what the Government's strategy is all about.

Mr. Gwilym Roberts: Does the Secretary of State agree that while the new kidney card system is welcome, the whole system could be made more efficient and be revolutionised if a central computerised bank of donors were made available? That would eliminate many of the existing problems.

Mr. Jenkin: I am aware of the proposals in that regard. However, such a system would be very expensive to set up. In 1978–79, the estimated costs of setting up such a system were put at £5 million, and it would cost £1½ million a year to run and keep up to date. I suggest that it might be valuable only if we were to use the system advocated by the hon. Member for West Lothian (Mr. Dalyell)—an opting-out system. That raises difficult, sensitive and emotive questions, which no doubt will continue to be debated.

Mr. Donald Stewart: In view of the Secretary of State's desire to make more money available for those benefits, and since the EEC is permitting Britain to keep some of its own money, will he say that he will seek to divert some of that money to these benefits?

Mr. Jenkin: As the Minister in charge of a major spending Department, I wish that that were right, but no extra money will come back to Britain until the next calendar year. The overriding nature of the Government's obligation to reduce the public sector borrowing requirement must take precedence. We have published our public spending programmes for four years ahead, and our highest priority is to stick to them.

Child Benefit

Mr. Peter Bottomley: asked the Secretary of State for Social Services if he will make a statement on the future relationship between increases in prices and changes in child benefit.

Mr. Patrick Jenkin: I am required, under the Child Benefit Act 1975, to review the rate of the benefit each year having regard to the national economic situation as a whole, the general standard

of living and other relevant matters. Of course we must take into account changes in price levels, but they are not the only factors.

Mr. Bottomley: I am grateful to the Secretary of State for that answer, but I am more interested in the political side of the matter. Would it not be a good idea for my right hon. Friend and the Cabinet to announce a year in advance their intentions about child benefit, so that people with children will know whether they have an interest in keeping down the rate of inflation or helping it to continue on its present course?

Mr. Jenkin: That is an ingenious suggestion. Factors governing decisions on increases in the rate of child benefit are considered regularly by the Government, but we have no proposals to change the statutory obligations.

Mr. Stoddart: Is the Secretary of State aware that the child benefit is already way behind the increase in the cost of living? Is he aware also that families with children are the poorest in our community? Far from announcing an increase a year in advance, the Secretary of State should announce an increase immediately.

Mr. Jenkin: That depends on the point from which we take the base rate. If we start from the last year when there was a mixture of child tax allowances and family allowances, on reasonable assumptions, by next October the great majority of families with children will be better off than if they had remained on child tax allowances and family allowances, adjusted for increases in the cost of living. That is a fact. In addition, the Government have taken particular care to increase the amount and entitlement of family income supplement, which is designed particularly to help those families on very low incomes—families about whom the hon. Gentleman is concerned.

Sir Brandon Rhys Williams: Does my right hon. Friend agree that when increases in prices place pressure on family budgets it is better for the economy to relieve that pressure by increases in child benefit than by blanket increases in wages that are bound to be inflationary?

Mr. Jenkin: I am sure that my hon. Friend is right, but we would need a fairly cast-iron guarantee that if the level of child benefit were increased to achieve the objective that he is seeking, that would be matched by a corresponding reluctance on the part of trade unions and those for whom they bargain to press for higher wages—for which they would press in any event.

Mr. Freeson: As a result of the failure of the Government to uprate child benefit in April, there has already been a loss on each child benefit of £1.35 in relation to the rate of inflation. What do the Government intend to do to restore the real value of child benefit, which since April 1979 has dropped to such a degree, and is continuing to drop as the rate of inflation increases?

Mr. Jenkin: As the right hon. Gentleman knows, it makes sense in every way to announce increases in the rate of child benefit at the same time as tax changes are announced in the Budget, and for the increases to take effect at the normal uprating date, so that they can be moved in parallel with the corresponding adjustments in the social security and national insurance child dependency additions. That is the sensible and logical way to proceed. This year the increase in child benefit on an annual basis was the same in percentage terms as the increase in personal allowances for income tax. On an annual basis, they moved in parallel.

Pensions

Mr. Rooker: asked the Secretary of State for Social Services if he remains satisfied with his forecast of price increases for November on which he based the retirement pension increase.

Mr. Prentice: Yes, Sir.

Mr. Rooker: Does the Minister accept that in Committee recently the Secretary of State cast doubt on his forecast of 16½ per cent? Will he accept that if an allowance were made for the shortfall that occurred last November under a law that was not changed until last week, if an allowance were made for the 54-week change, and if an allowance were made to take account of an inflation rate of 24 per cent. in November, a married couple should receive £2.20 a week more

in November than they will receive under the Government's proposals?

Mr. Prentice: Most of the hon. Gentleman's supplementary question included a series of rapid-fire questions. I shall look at the figures and see whether I can do the arithmetic. With regard to the first part of the hon. Gentleman's question, I have checked on what my right hon Friend said in Committee. In dealing with the rate of inflation he said that we would have to wait and see. He said earlier today—and I endorse it—that we expect the rate of inflation to slow down between now and November.

Mr. Peter Bottomley: Is it not correct that the rate of inflation will be at 20 per cent. in November only if people at work press for large pay increases on a continuous basis? Those who would like the rate of inflation to be at 16½ per cent. in November will do everything that they can to keep down the rate of pay increases.

Mr. Prentice: I agree with my hon. Friend. The best service that hon. Members can perform for pensioners and other recipients of national insurance is to argue strongly for restraint in wage and salary claims in the coming year.

Mr. Andrew F. Bennett: Does the Minister agree that if he has got the inflation rate right at 16½ per cent. in November, he can give a categorical assurance now that if there is a shortfall the Government will make it up, because there would not be any shortfall? If he is not prepared to give that assurance, that must mean that he has no confidence in his estimate of the inflation rate in November, and that all that he wants to do is to delay letting pensioners know by just how much more he will rob them by not raising the rate in line with inflation.

Mr. Prentice: No, Sir. No Government can be absolutely certain in June what the inflation rate will be in November. No Government would make a hypothetical assumption that the existing estimates are wrong, and therefore they must make firm statements about what will happen if they turn out to be different.

Mr. Orme: Is the Minister not aware, however, that there was a shortfall last


November of 1·6 per cent., that the Government are robbing pensioners of two weeks' justifiable increase this year, and that if the rate of inflation is over 16½ per cent. pensioners will be hit again? My hon. Friends are right to press the Government, in view of the treatment that they are giving to pensioners.

Mr. Prentice: Pensioners will be aware that last November we uprated pensions and other benefits by almost 2 per cent. more than the statutory obligation, in order to make good a shortfall that had occurred under the Labour Government's arrangements, so our record on this matter is good. These matters are never the subject of categorical assurances in advance. If there is a shortfall, the matter will be considered when we know about it. We shall know about it by about the middle of December, when we shall have the November RPI figures.

Community Health Councils

Mr. Renton: asked the Secretary of State for Social Services what role he sees for community health councils in the future of the National Health Service.

Mr. Patrick Jenkin: I am considering with care the many comments we have received on paragraph 26 of " Patients First " about the future of community health councils, and I shall announce my decision next month.

Mr. Renton: I thank my right hon. Friend for that answer. Does he not consider that even if, at times, they have been a bit cumbersome, CHCs have played a useful role in involving local people in local health and hospital decisions? When the area health authorities disappear, will not this neighbourhood participation in local decisions become even more important?

Mr. Jenkin: I am in no doubt that many CHCs have made a constructive and helpful contribution to their local health services. In " Patients First " we acknowledged—indeed, we are grateful for it—the time and energy that many CHC members have devoted to their role. Whether this role remains as valid as it is now, given the proposed changes in the general structure of the NHS, is something that I am considering, and on which I shall announce a decision next month.

Dr. Roger Thomas: Will the Minister consider ameliorating the rather ominous and loaded emphasis in the consultative document " Patients First " on the costs of CHCs?

Mr. Jenkin: The point has been made on behalf of CHCs that if they did not exist many of these costs would be incurred by health authorities because they would have to deal with the public and provide information and engage in consultations in the way that the CHCs do. That is a point of which I take note, and it is among the matters that I am considering.

Mr. Paul Dean: I accept that some community health councils have been more satisfactory than others. However, will my right hon. Friend take account of the fact that, possibly suitably reformed, they could be a valuable bridge between patients and the NHS, and that there is a good case for their retention?

Mr. Jenkin: I am grateful for that expression of opinion from my hon. Friend, of which I certainly take note. Among the comments that we have received about CHCs there has been general agreement on the importance of the members appointed by the voluntary sector. It may well be that CHCs would stand to gain and that their work would be more relevant if they had among their membership a higher proportion of people from the voluntary sector.

Mr. James Hamilton: Will the right hon. Gentleman accept that, as the hon. Member for Somerset, North (Mr. Dean) said, there is a strong case for the retention of CHCs? Is the right hon. Gentleman aware that the view is that at least the patient has the right to go to his CHC, and that on that basis there is direct consultation? If we lose that, patients will feel that they have lost everything.

Mr. Jenkin: I take note of that expression of opinion as well. The CHCs were set up not primarily to be patients' friends, but to represent, as it were, the public collectively in relation to the health authorities whose districts they cover, and that function has grown. Many patients have difficulty in finding their way around the administrative system in the NHS, and the CHCs have been valuable


in helping them to put forward their complaints.

Hospital Waiting Lists

Mr. Edwin Wainwright: asked the Secretary of State for Social Services how many persons are on the waiting list requiring surgical treatment at each of the area health authorities in the South Yorkshire district; and what were the comparable figures for the previous three years.

The Under-Secretary of State for Health and Social Security (Sir George Young): I shall circulate the information requested in the Official Report. The latest centrally available routine return shows that on 30 September 1979 about 20,000 people were waiting for admission to surgical departments of hospitals in South Yorkshire.

Mr. Wainwright: Are the figures improving? Secondly, will the right hon. Gentleman take into account the fact that many people on these waiting lists are suffering pain and inconvenience while waiting to enter hospital? When will the Government do something to ensure that patients are taken off the lists in rotation, instead of allowing some doctors, as some are doing now, to recommend to patients that they see a consultant and say that for a sum of between £700 and £1,000 they can have an immediate operation for arthritic hips?

Sir G. Young: The answer to the first part of the hon. Gentleman's question is

NUMBER OF PEOPLE AWAITING IN-PATIENT ADMISSION IN SURGICAL SPECIALTIES ON 30 SEPTEMBER


Area Health Authority



1976
1977
1978
1979*


Barnsley
…
…
…
2,181
2,594
3,077
3,966


Doncaster
…
…
…
3,497
3,659
4,412
4,689


Rotherham
…
…
…
2,510
2,013
2,600
2,962


Sheffield
…
…
…
7,748
7,845
8,350
8,887


* Provisional figures.

Westminster Hospital

Dr. Mawhinney: asked the Secretary of State for Social Services if he has any plans to reduce the number of beds at the Westminster hospital.

Sir George Young: No, Sir.

Dr. Mawhinney: I thank my hon. Friend for that reply. Is he aware that a senior member of London university and a Member of the other place is claiming that the decision in the Flowers report

that the waiting list in England for inpatient admission in December 1974 was 517,000. By March 1979 it had risen to 752,000. The latest available figures show a fall of about 50,000, to about 700,000 last year.

On the hon. Gentleman's specific question, the Trent regional health authority has now determined a target waiting list for each specialty, in order to achieve the Department's targets. The achievement of the target in surgical specialties will require a substantial increase in admissions and operations over the next few years.

Mr. Crowther: Is the hon. Gentleman aware that the Trent region, which includes South Yorkshire, is at the bottom of the league in the allocation of Health Service resources? Is he further aware that the equalisation process begun by the previous Government has come to a stop? What will he do about an area that desperately needs these services, but does not happen to return many Conservative Members to this place?

Sir G. Young: When my right hon. Friend made the allocations to the regions a few months ago he managed to get a larger-than-average increase to those regions, such as Trent, that were underfunded. If we are to make real progress in the equalisation of Health Service resources throughout this country, we must generate some economic growth with which to pay for it.

Following is the information:

to do away with the Westminster medical school was based on a decision, reputedly from his Department, to reduce the number of beds in Westminster hospital? Because of that, will my hon. Friend take steps today to write a full response to the university, embodying the reply that he has just given to me?

Sir G. Young: I think that my hon. Friend is referring to a consultative report by the London health planning consortium. Those views are not the views


of Ministers. If and when the consortium's proposals are submitted to us, after consultation we shall ask the new London advisory group, under Sir John Habakkuk, to consider them and any other proposals affecting the level of acute services in central London. Until we have Sir John Habakkuk's advice later in the year, we have no intention of forming a view on any of these issues.

Mr. James A. Dunn: Will the Minister undertake a review of the circumstances surrounding the recommendations that have been made? It would appear that this is confusion confounded. Indeed, if one were to take note of the various inputs one would finish up absolutely confused on all the relevant facts. In those circumstances, will he make a fuller statement to the House?

Sir G. Young: We had a full Adjournment debate on this subject a few weeks ago, when the matter was ventilated by a number of hon. Members. The London health planning consortium was set up two years ago by the previous Government, and it was the consortium's report to which I think the hon. Member was referring.

Mr. Mellor: With the greatest respect to my hon. Friend, will he please make it clear that if it is not the Government's view that the consortium's report is right, that fact should be given the widest publicity? London university is acting on the assumption that it may be the Government's policy, and it is taking its decision in July. It is disgraceful that it should still be under this misapprehension.

Sir G. Young: Ministers have not yet come to a conclusion on the various issues that my hon. Friend has raised. The views of the London health planning consortium are the views not of Ministers but of the officials who compiled the report.

Mr. Ennals: Will the Minister confirm that the vice-chancellor of the university said, within the hearing of hon. Members from all parties, that it was clear that there would have been no proposal to close Westminster medical school, had it not been assumed that there would be a cut of 400 beds? Does the Minister agree that it would be appalling if the university were to make a decision about the medical school, based on an assumption

which he has confirmed has no foundation?

Sir G. Young: The University of London should be under no such illusion. It should make the changes that it thinks right, in the light of the Flowers report. Both my right hon. Friend and I have made clear that the Secretary of State will not prejudge the proposals for changes in the pattern of hospital services until he has heard from the London advisory group.

Day Nurseries

Mr. Dubs: asked the Secretary of State for Social Services how many day nursery places for under-fives there are in England and Wales; how many new places will be provided in 1980–81; and how many places will be lost through closures.

Sir George Young: On 31 March 1979 there were 28,700 places in local authority day nurseries in England and Wales, and private premises were registered to provide all-day care for up to 22,600 children. Information is not available on the number of new places to be provided in 1980–81, or on the number of places to be lost through closures.

Mr. Dubs: Does the Minister accept that there is an urgent need to provide more day nursery places? Is he aware that Wandsworth council has recently decided to close a day nursery in an area in which more places are needed? Will he urge local authorities not to close day nurseries, but to provide more care for the under-fives?

Sir G. Young: No, Sir. In general, I do not accept that it is the State's job to provide day care to enable the parents of young children to go out to work. I understand that Wandsworth council has made arrangements for those children who were attending the Nightingdale Lane day nursery. Under a recent phase of the urban programme, several latchkey children's schemes have been put forward by Wandsworth council, and have been approved.

Mr. Thompson: Is there any cooperation between the Department of Health and Social Security and the Department of Education and Science on this issue?

Sir G. Young: I hope that I shall not be misunderstood when I say that I keep in very close touch with Lady Young, Minister of State, Department of Education and Science. She is no relation. I have regular meetings with her about provision for the under-fives. Last autumn we jointly met a delegation from the Pre-School Playgroups Association. Later this month we shall make joint visits to schemes for under-fives in Hounslow and Haringey.

Mr. Moyle: Given the Minister's decision to abolish the Personal Social Services Council with effect from tomorrow—despite its excellent record of advice to Governments and despite savage cuts in personal social service budgets—is not the only way that he can maintain credibility to admit that such services will deteriorate steadily under this Government?

Sir G. Young: With great respect to the Personal Social Services Council, it has not provided any services for the under-fives.

Mr. Soley: Does the Minister agree with the National Society for the Prevention of Cruelty to Children that the best way to reduce the incidence of child cruelty and abuse is to provide adequate day-care provision? If he agrees with the NSPCC, will he ensure that all local authorities provide adequate facilities?

Sir G. Young: The Department will shortly issue a circular that will indicate how the register might be put to more effective use to reduce the tragic incidence of child abuse.

Paul Hardman

Mr. Spriggs: asked the Secretary of State for Social Services if he has received the details about Paul Hardman, who has suffered as a result of vaccine damage for a number of years; and what steps has he taken to advise the hon. Member for St. Helens about the parents' right to claim payment under the Vaccine Damage Payments Act 1979 on behalf of their son, Paul.

Mr. Patrick Jenkin: I have received those details. I share the hon. Gentleman's distress that Paul should be so severly disabled. I have replied to the hon. Gentleman's letter. A particular difficulty

affecting the case is that many of the medical records are difficult to decipher.

Mr. Spriggs: I thank the right hon. Gentleman for his letter, which I received at 2 o'clock this afternoon. Is he aware that the information contained in the letter is not very helpful in a case in which a child has been severely damaged for the rest of his life, and in which there is no hope of his regaining normal health? A claim is being made under the Vaccine Damage Payments Act 1979, but it is said that the claim will hang on the question of probability. In a case such as this, where there is some doubt, should not the child be given the benefit of any doubt, and receive damages?

Mr. Jenkin: I assure the hon. Gentleman that this case has been dealt with precisely in accordance with the Act passed by the last Parliament. The Bill was introduced by the right hon. Member for Norwich, North (Mr. Ennals). First time round, on the balance of probability, the authorities were unable to conclude that Paul's disabilities were due to vaccination. His parents have a right of appeal and they are pursuing that. I hope that it will be heard as soon as possible.

Oral Answers to Questions — LARKHILL, STOCKPORT

Mr. Andrew F. Bennett: asked the Prime Minister if she will pay an official visit to Larkhill, Stockport.

The Prime Minister (Mrs. Margaret Thatcher): I have at present no plans to do so.

Mr. Bennett: From Larkhill the Prime Minister would be able to see four old council estates in Stockport that are in desperate need of modernisation and repair. What advice would she give to the elderly and to those on low incomes living in those houses about how to modernise their homes, in view of the drastic cut back in Government spending on housing and the increasing number of unemployed in the building trade in Stockport?

The Prime Minister: With regard to expenditure on housing, it is for the local authority to determine its priorities. I share the hon. Gentleman's disappointment that after quite a long period of Labour government, he must indicate that position.

Oral Answers to Questions — PRIME MINISTER (ENGAGEMENTS)

Mr. Peter Bottomley: asked the Prime Minister if she will list her official engagements for 3 June.

The Prime Minister: In addition to my duties in this House I shall be having meetings with ministerial colleagues and others.

Mr. Bottomley: How does my right hon. Friend intend to deal with the reduction in the United Kingdom contribution to the EEC? Am I right in thinking that a good part of it will be put towards the public sector borrowing requirement and so lead to lower interest rates? Is not that the key to future progress?

The Prime Minister: My hon. Friend is right. One of our greatest problems is high interest rates. It is vital that the refunds that we have secured from the European budget should go to reducing the public sector borrowing requirement and, therefore, interest rates.

Mr. David Steel: Since the purchasing power of the pound has continued to fall steadily under this Government, so that the value of the 50p piece introduced in 1969 is now only 13½p, will the right hon. Lady consider commemorating the first year of this Government's term of office by introducing a £1 coin?

The Prime Minister: I have not considered that. The greater part of the reduction did not occur under this Government.

Mr. John Carlisle: Will my right hon. Friend take time off today to send a message of support to the British Lions rugby team in South Africa, to encourage it in its games against multi-racial teams in front of multi-racial crowds? Is it not time that we tore up the Gleneagles agreement?

The Prime Minister: I am sorry to disappoint my hon. Friend. We advised the British Lions that to go to South Africa would be contrary to the Gleneagles agreement. We also said that when sufficient advances had been made in the present arrangements in South Africa for races playing together we would consider revising the agreement. That time has not yet arrived.

Mr. Bagier: Does the right hon. Lady appreciate that the treatment that she received from some people during her recent visit to Sunderland was less than the courtesy normally given to VIPs visiting the area?

Mr. William Hamilton: It served her right.

Mr. Bagier: What will she do to alleviate the tremendous problems of Sunderland and similar areas?

The Prime Minister: I do not agree with the hon. Gentleman's assessment. I had a very enjoyable and valuable visit to Sunderland and Durham. I hope to return to the North-East again. I learnt a good deal about their problems. One problem in Sunderland is persistent unemployment, which results from the great difficulties of the older industries. The hon. Gentleman is aware that subsidies are being given to help shipbuilding. We shall do all that we can. He will also be aware of the proposal in the Budget for enterprise zones. Many people are applying for those zones. I hope that decision will be made within about six weeks on who shall have them.

Mr. Mellor: Has my right hon. Friend had an opportunity to study the new policy document to which the Labour Party has apparently committed itself? Does she agree that it appears to be nothing short of disgraceful that the Labour Party's policy-making has been taken over by the Trotskyite militant faction?

The Prime Minister: I have not considered it, but I am sure that what my hon. Friend has said is true, and therefore the document will not be among my top priorities for reading.

Mr. Stephen Ross: asked the Prime Minister if she will list her official engagements for 3 June.

The Prime Minister: I refer the hon. Member to the reply which I gave a few moments ago.

Mr. Ross: If the Prime Minister meets the Chancellor of the Exchequer some time before the end of the day, I hope that they will do something to help manufacturing industry in this country. Are we now positively to discriminate in favour of the producers in our society, or


is the right hon. Lady prepared to go down in history as the Prime Minister who allowed more bankruptcies and more closures to take place than at any other time in the last 100 years? What does she intend to do to help our manufacturing industry, faced with an over-valued pound and high interest rates?

The Prime Minister: I have already seen my right hon. and learned Friend the Chancellor of the Exchequer today, and we discussed just these problems. The greatest help that can come about for manufacturing industry is for wage increases to be related to productivity increases. That is a matter for employees and management to discuss together.

Mr. Gummer: Will my right hon. Friend take time today to ensure that the public are aware of the fact that during five years' of Labour Government no kind of rearrangement with the EEC was achieved, whereas in one year of this Conservative Government a major change has taken place—and the right hon. Member for Stepney and Poplar (Mr. Shore) was ungenerous enough to carp even at that great success?

The Prime Minister: I am grateful to my hon. Friend. The one thing that the right hon. Member for Stepney and Poplar (Mr. Shore) forgot was the Labour Government's lamentable record on this front.

Mr. James Callaghan: Would the right hon. Lady care to take into account that in two years of Labour government we made a surplus in our dealings with the EEC, which is more than her Government have done? With regard to the general position—with which the question by the hon. Member for Isle of Wight (Mr. Ross) is concerned—why does the Prime Minister propose to wait until mid-July to get her Cabinet together to consider the failure of these economic policies? Ought they not to be reversed immediately?

The Prime Minister: Any years in surplus must have been arranged by the previous Government. The White Paper on public expenditure demonstrates the actual transfers of funds over the past years, which were enormous during the latter part of the Labour Government's term of office and were enormous this year. What has been negotiated now is a

refund of some £710 million this year and a refund of some £860 million next year, which is an excellent result, and of course we shall continue with the restructuring of the common agricultural policy and of the EEC budget. Meetings of the Cabinet on economic policy are regular.

Mr. Callaghan: What is the status of this Cabinet meeting to be held on 16 July? Is it to reverse these dreadful polices which, after 13 months of Conservative Government, have led to a high rate of inflation and the threat of even higher unemployment? The right hon. Lady knows also that the output of manufacturing industry is going to decline. When will she adopt policies that will reverse these disasters?

The Prime Minister: The right hon. Gentleman is trying very hard. We have regular Cabinet meetings on economic policy. We do not reveal the agendas. Nor did he reveal the agendas of his Cabinet.

Mr. Callaghan: In that case, the right hon. Lady need not wait for Cabinet meetings in order to reverse these policies. It is the disaster that is overtaking Britain and its people that we are concerned about. What is she going to do about it?

The Prime Minister: One relevant matter that has come up today is that the refund will go towards reducing expenditure, which will help to reduce interest rates. I shall, of course, be very grateful for any help that the right hon. Gentleman sees fit to give in encouraging wage increases to keep step with productivity increases, but I do not expect such assistance from that quarter.

Mr. Brinton: During the course of her busy day, will my right hon. Friend spare a moment to reflect on the sad events at the CEGB power station at Grain, in my constituency, last Tuesday, not in any sense to crow that right thinking overcame violence, but to look at the deeper implications? Does my right hon. Friend agree that the 1,600 people who were in work wish to continue working? If the trade unions involved can cobble up their differences, will she please encourage the CEGB to go ahead and complete that power station, thus giving those loyal people the work that they want?

The Prime Minister: I am glad to respond to my hon. Friend. I think that the state of affairs at the Isle of Grain power station shows two things. The first is the lamentable relationship between the unions concerned, which I hope they will be able to sort out in the interests of all who work in the industry and of trade unionism itself, and the second is the lamentable state of affairs for the people of this country who have put an enormous amount of investment into that power station, which is reflected in their electricity prices. I hope that the power station will be completed and produce the electricity for which it was designed.

Mr. Canavan: asked the Prime Minister if she will list her official engagements for 3 June.

The Prime Minister: I refer the hon. Member to the reply which I gave a few moments ago.

Mr. Canavan: Will the right hon. Lady find time to make a statement about reports of Government contingency plans for the use of the Armed Forces in Scottish hospitals in the event of industrial action by hospital workers? Why not avoid the possibility of industrial disputes by giving the Health Service workers a decent wage increase instead of using troops as scab labour to do a job for which they are not trained?

The Prime Minister: I hope that satisfactory agreements will be concluded, because, after all, those who work in the Health Service serve the people of this country, including Scotland, and I hope that that will be their top priority.

Mr. Cadbury: Will my right hon. Friend find time today to take account of the anger felt by many people in Birmingham over the recent decision by the Labour-controlled council to end the sale of council houses? Will she give an assurance that when the Housing Bill becomes law no council will be allowed to deny tenants the right to buy their houses?

The Prime Minister: I am not certain whether that decision is final. If it is, I very much regret it, as do many of the people who live in those council houses. When the Housing Bill becomes law people will have the right to purchase their council houses, and hundreds of thousands of them will take up that right.

Mr. English: Has the right hon. Lady considered the possibility that one policy of the Chancellor of the Exchequer might be absolutely right if only he continued with it? Is she aware that the exchange rate would now probably be higher than it is had he not abolished exchange controls? Will she now suggest to her right hon. and learned Friend that he should carry on with his policy and reintroduce exchange controls in reverse, so that without increasing the money supply he can lower the exchange rate?

The Prime Minister: Of one thing I can assure the hon. Gentleman—[Interruption]. My right hon. and learned Friend—[HON. MEMBERS: " Answer "]. I am trying to.

Mr. Speaker: Order. The noise only takes away from the Prime Minister time for answering questions and makes it harder for her to answer.

The Prime Minister: I assure the hon. Member for Nottingham, West (Mr. English) that my right hon. and learned Friend will carry on with his present policies.

Mr. Ancram: Is my right hon. Friend aware that despite continuing Soviet aggression in Afghanistan a number of Labour-controlled councils in Scotland are giving large sums of ratepayers' money to support the Olympics? Does she regard that as a scandalous abuse of ratepayers' money at a time of restraint?

The Prime Minister: I am aware of that decision. I join my hon. Friend in thoroughly deploring it.

Mr. Ogden: Will the right hon. Lady realise that this is a comparatively simple question? Will she inform her hon. Friend the Member for Edinburgh, South (Mr. Ancram) that many councils, both Labour and Conservative, that might, for their own reasons, want to sell council houses will be unable to do so because funds for mortgages are being denied to those councils by her right hon. Friend the Secretary of State for the Environment?

The Prime Minister: But the funds for the building of the houses have already been borrowed and are then repaid. It is not impossible to transfer that loan to the tenant.

NEW HEBRIDES

The Minister of State, Foreign and Commonwealth Office (Mr. Peter Blaker): With your permission, Mr. Speaker, I shall make a statement on the New Hebrides.
As the House is aware, the condominium of the New Hebrides is the joint responsibility of Britain and France. Yesterday evening in Paris I met my French colleague, M. Dijoud, the Secretary of State for Overseas Departments and Territories, to review recent events on the island of Espiritu Santo.
M. Dijoud and I agreed that we must discharge our joint responsibility to maintain law and order in the territory. We agreed that we must re-emphasise our joint support for the democratically elected Government of the New Hebrides our commitment to the independence constitution agreed by all parties in Vila last year, and our determination to safeguard the territorial integrity of the condominium.
We further agreed that the authority of the legitimate Government must be restored on the island of Santo as soon as possible, and condemned the actions of those responsible for the armed insurrection on the island.
We agreed that we must jointly make one further effort to persuade both sides to renew, in a true spirit of compromise, the discussions begun in London in March and which have continued until recently, in order to find a peaceful solution to their differences.
In making this appeal, and in urging the Chief Minister to pursue a policy of national reconciliation, we recognised that an essential prerequisite of constructive negotiations must be the reimposition of the authority of the legitimate Government on the island of Santo. In short, those responsible on Santo must agree to return to the legal and administrative position obtaining before the insurrection of 28 May.
M. Dijoud informed me that France was now prepared to agree to the 30 July independence date proposed by the New Hebrides Government. In accepting this date, which is a mere two months away, we recognised that the present problems must be urgently resolved. If no progress is made towards reconciliation,

Britain and France will decide jointly on what further action to take.

Mrs. Dunwoody: Is the Minister aware that this weak and vacillating statement is in total contradiction to the pledges that he has given to the House to maintain law and order, which he has undertaken to do on behalf of the British Government? The Minister said that the Government are prepared to take all necessary steps to preserve the peace of the New Hebrides. He said that a joint force of police mobiles was ready to take action is necessary. What has happened to that undertaking?
Have the French Government made it clear to those of their nationals who are reported to be supporting this shabby little manoeuvre that they will not in any circumstances allow them to carry on with this open flouting of the central Government? Is he aware that the Chief Minister has more than once offered talks to the people on Espiritu Santo and that his offers have been openly spurned? Why have the Government climbed down, and what do they intend to do to maintain the peace of the New Hebrides?

Mr. Blaker: I totally repudiate the tone of the hon. Lady's question. The main criticism that I have heard in the past two months about the action of the French and British Governments has been that the independence constitution that M. Dijoud and I worked out together last autumn has worked in such a way as to favour the anglophone Government of the New Hebrides. My French colleague and I issued a statement in January in which we clearly stated our support for the legitimate Government of the New Hebrides and our determination to reject any movement towards secession. If the hon. Lady studies the statement that M. Dijoud made with me yesterday, she will find that it is a very strong statement. I assume that M. Dijoud can be taken at his word.
If the hon. Lady is asking for the use of military force, I must tell her that I agree with my French colleague that for the moment the right course is to make a further attempt at negotiation. As recently as 28 May the Chief Minister called for further negotiation. However, the Government have sent to the New Hebrides two military advisers. They are


there now, and they will be able to advise the Government what steps may be necessary, in a military sense, if, regrettably, the peaceful negotiations that we have proposed do not succeed.

Mrs. Dunwoody: This is a total contradiction of the undertaking that the Minister gave to the House. He said that a police mobile force was available, which would take action, if necessary, to restore law and order on Santo. He now says that they are offering military advisers. Will he please give us a clear explanation, or has he backed down in the face of the attitude of the French Government?

Mr. Blaker: No. I repeat that we have not backed down. I have taken the same view as my colleague, M. Dijoud, namely, that for the time being the right course is to press both sides for further negotiations. I remind the hon. Lady that when there were disturbances on the island of Tanna a few days ago we took action with the police mobile forces. That action was successful. Before we go in for military action, we must be careful to ensure that such action will be effective. That is one of the matters on which we shall have advice from the two military advisers. For the time being, we believe that the right course is negotiation, which Father Lin was supporting on 28 May.

Mr. Kershaw: Does my hon. Friend agree that he is wise to proceed slowly and cautiously in this particular and peculiar part of the world? Secondly, what is the attitude of Her Majesty's Government to the Phoenix Foundation?

Mr. Blaker: I find it somewhat surpriing that the Opposition should be calling, apparently, for military action in such a hurry. It is something that we will wish to remember on future occasions. It contrasts with some attitudes that they have taken in the past.
It is clear from the Phoenix Foundation's own admission that it has been involved in the insurrection. I have agreed with M. Dijoud that we should take action to eliminate the meddling of the Foundation on Santo. At our request, the United States Government have agreed to see whether any United States laws have been violated by the involvement of United States citizens. Yesterday, the State Department issued a statement that

it was its intention to prosecute should there be any violation of United States law.

Mr. Heffer: Send in an assasination squad.

Mr. Christopher Price: Will the hon. Gentleman tell us in rather greater detail why the Government have decided to renege on their absolute pledges in the House, on three occasions, to take whatever measures were necessary to restore law and order, and why they have allowed M. Dijoud to issue a statement that only negotiations—that is, ruling out force, as we did over Rhodesia—can solve the problem?
Will the hon. Gentleman confirm that, although there is a duty to consult in the treaty, as in the Cyprus treaty, there is nothing to preclude the British Government, if necessary, taking unilateral action if they decide that that is proper? Finally, can the hon. Gentleman give an absolute assurance that if Mr. Oliver, any other member of the Phoenix Foundation, or any member of the French interests in Paris involved in the coup against the legitimately elected Government of the New Hebrides arrives at Port Vila, he will be sent home on the next plane?

Mr. Blaker: The Government are not reneging on any of their undertakings. I repeated those undertakings in my statement today. We did not say that in the event of the threat of secession, or secession, our first step would be to take military action. We said that we would sustain the integrity of the New Hebrides. Powers exist to keep Mr. Oliver and the other members of the Phoenix Foundation out of the New Hebrides. I have my French colleague's assurance that such powers will be used if necessary. The nature of the condominium is such that it is assumed that the two metropolitan Powers will always act together. The basic constitutional document, which is the document of 1914, is silent on the possibility of unilateral action. I believe that it is essential for Britain and France to act together. That way we have the best chance of success.

Mr. Philip Holland: As one who was recently airwrecked in the New Hebrides, may I ask my hon. Friend to congratulate warmly the authorities in Port Vila for their prompt action in removing from


the area of insurrection people who might have been at risk? Can my hon. Friend assure us that, if necessary, further support will be given immediately to the authorities in Port Vila to mount a rescue operation and put down the insurrection promptly?

Mr. Blaker: I am grateful for my hon. Friend's remarks about the British authorities' actions in Port Vila in rescuing people from the island of Santo. I shall see that those remarks are passed to our resident commissioner. They are well deserved. I do not believe that he requires further help at present to continue the rescue operation. I have nothing to add to what I said with regard to the use of force.

Mr. Russell Johnston: As all the problems that we are now concerned with were ventilated in debates in this House, and, I presume, were equally well known to the French Government, how on earth have two such widely experienced colonial Powers got themselves into such an enormous mess?

Mr. Blaker: I do not accept that it is the two colonial Powers that have got themselves into an enormous mess; nor would I describe the situation as an enormous mess. It is a problem. I am sure that the hon. Gentleman understands that a condominium is not the easiest arrangement to manage. The problems of a country coming to independence from condominium status are greater than those of a country that has been ruled by only one country.

Mr. Cormack: Does my hon. Friend agree that it is revealing that the Opposition are anxious to use force only when the enemy is armed with bows and arrows?

Mr. Blaker: I have noted the interesting development of the Opposition calling for the use of force. However, the House should not assume that bows and arrows are the only weapons with which the rebels are armed. They have other weapons. The House should also not assume that a bow and arrow is not a lethal weapon.

Mr. Speaker: Order. I propose to call those hon. Members who have been rising throughout questions on the statement.

Mr. Dalyell: Are senior advisers in the Foreign Office in any way haunted by the rotten advice about Anguilla that they gave to my noble Friend Lord Stewart of Fulham—then Mr. Michael Stewart—when he was Foreign Secretary? If not, they should be. In terms of force, what does the Minister mean by his reference to the Government's determination to safeguard the territorial integrity of the condominium?

Mr. Blaker: I do not believe that a valid comparison can be made between the New Hebrides and Anguilla. We are dealing here with a minority group that lost the regional election in Santo last November. Having lost that election, that group is attempting to gain control by the use of force. The meaning of my statement is perfectly clear. I have already dealt with the hon. Gentleman's point.

Mr. Paul Dean: Will my hon. Friend accept that I welcome his statement that it is the joint responsibility of the British and French Governments to ensure that law and order are restored? Does he agree that it is essential for the future viability of the New Hebrides that its territorial integrity is maintained and fragmentation is avoided?

Mr. Blaker: I entirely accept my hon. Friend's point. A matter also understood by the Chief Minister and hon. Members who know the New Hebrides as well as my hon. Friend is that it will continue to be dependent on France and Britain after independence, as it will require aid from both countries. That is an important factor in the future life of the New Hebrides, and one reason why I believe that it is important for Britain and France to act together.

Mr. Hooley: Is the hon. Gentleman aware that the French Government appear to be following the same dubious policy in the New Hebrides as that which they followed in the Comoro Islands, which led to international friction? Is he also aware of the involvement of the squalid American business interests in the episode? If so what formal representations have been made to the American Government?

Mr. Blaker: There is no comparison between the situation in the New Hebrides and that in the Comoro Islands.


Perhaps the hon. Gentleman was not in the House when I answered a question about the American business interests a few months ago.

Mr. Biggs-Davison: How many people have been evacuated or rescued from Espiritu Santo, and how are they being looked after?

Mr. Blaker: According to the latest information that I received this morning, a total of about 1,400 people have been evacuated from Santo. Among them are 104 people of non-New Hebridean origin, including 21 British subjects. To our knowledge, a few people are left, including one Briton who has chosen to remain, and about 30 other non-New Hebrideans. The people evacuated are being looked after under emergency arrangements. I have had no complaints about difficulties.

Mr. Ogden: Will the Minister now accept that the Melanesian way includes the use of force, as he has been warned on more than one occasion in past weeks? Will he further accept that either local French officials have been misleading the French Government, the French Government have been misleading the hon. Gentleman, or the hon. Gentleman has been inadvertently misleading the House? Will he please check his information? Does he believe that Mr. Jimmy Stevens will take notice of the statements that he, the Minister, makes in this House?

Mr. Blaker: We have agreed that the French and British Governments will do their utmost to persuade both sides to agree to the negotiations that we have proposed. I believe that there is evidence that some officials employed by the French sector of the New Hebrides Government have acted in an improper manner. I make a distinction between their actions and those of the French Government. M. Dijoud agreed yesterday to the communiqué contained in my statement. I believe that I am entitled to take him at his word.

Mr. Gummer: Does my hon. Friend agree that the future of the New Hebrides depends on the English—and French—speaking people getting on together? It is therefore most important that the two countries act together and are not seen to be divided. Will my hon. Friend

accept that the House does itself no credit by trying to drag anti-French feeling into this serious situation?

Mr. Blaker: I entirely agree. It is very much in the interests of the New Hebrideans that Britain and France should act together. However, I emphasise that the action agreed on yesterday was taken on its merits and on no other criteria.

Mr. Christopher Price: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
 the reneging by the Government on their absolute pledge in the House of Commons to take all necessary measures to preserve law and order in the New Hebrides and their failure to defend those islands' territorial integrity ".
I gave you notice, Mr. Speaker, before noon today that I might seek to move the Adjournment of the House to discuss this matter.
Hon. Members will remember the three recent occasions when the question of the New Hebrides has been discussed on the Floor of the House. The first occasion arose from a private notice question by my hon. Friend the Member for Eton and Slough (Miss Lester) on 22 November last year. In response to that the Minister of State, Foreign and Commonwealth Office—the hon. Member for Cirencester and Tewkesbury (Mr. Ridley)—said that he would use the police, and added:
 We shall go further than that if events prove that further action is necessary.
In answer to a later question the hon. Gentleman said that if the police
 are inadequate, further forces will be sent."—[Official Report, 22 November 1979; Vol. 974, c. 561–2.]
I initiated an Adjournment debate on 7 December and the Minister of State, Foreign and Commonwealth Office—the hon. Member for Blackpool, South (Mr. Blaker)—said:
 I can assure the House that we are prepared to take all necessary steps to preserve the peace of the New Hebrides as long as we are responsible for it."—[Official Report, 7 December 1979; Vol. 975, c. 885.]
We heard the hon. Gentleman's statement today alongside a statement by the French Minister, M. Dijoud, which appeared on the Press Association tapes saying exactly


the opposite. He ruled out any form of force and said that only peaceful negotiations could solve the problem.
In stressing the urgency of the matter I put it to you, Mr. Speaker, that an issue of confidence in pledges given to the House is at stake. It is clear that law and order have broken down and that the territorial integrity of the New Hebrides has been breached.
I remind the House that UDI has been declared on the island of Santo and new documents have been issued to everyone who wishes to remain there. The power of the British half of the condominium has been eliminated, while French policemen on the island are allowed to go about unmolested.
Secondly, it is well known that not only American interests, through the Phoenix Foundation, of Carson City, are involved in the ownership of land in the New Hebrides. That has been confirmed to me in a letter from the Minister of State about the extent of the ownership of land on the island. A total of 3,498·5 hectares of land is owned by the Foundation. On top of that, French interests, which are particularly voluble in the French Senate, are making it impossible for M. Dijoud, the responsible Minister, to take any decisions on his own account. He has to refer everything to President Giscard d'Estaing, because of the French commercial interests that are involved.
There are two issues at stake—absolute pledges given in absolute terms on the Floor of the House and British responsibilities to a condominium for which we still have responsibility. I urge on you, Mr. Speaker, the fact that the Minister

of State's statement represents a breach of faith with the House on pledges given to it. For that reason, an emergency debate is justified.

Mr. Speaker: The hon. Member for Lewisham, West (Mr. Price) seeks leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
 the reneging by the Government on their absolute pledge in the House of Commons to take all necessary measures to preserve law and order in the New Hebrides and their failure to defend those islands' territorial integrity ".

Mr. Skinner: Now read it in French.

Mr. Speaker: The hon. Member for Bolsover (Mr. Skinner) should not tempt me. I might go into Welsh, though that would not be very successful.
The hon. Member for Lewisham, West and the House know that when an application for an emergency debate is submitted to me I have to take into account the several factors set out in the Standing Order but to give no reason for my decision. The House knows that I do not decide whether the matters that the hon. Member has raised should be dabated, but merely whether they are of such a character that our business should be changed tonight or tomorrow night to allow an emergency debate to take place.
Having listened with care to the hon. Member, I must rule that his submission does not fall within the provisions of the Standing Order and, therefore, I cannot submit his application to the House.

NUCLEAR POWER STATIONS SITES

Mr. Bob Cryer: I beg to move,
That leave be given to bring in a Bill to provide for local voting on the siting of nuclear power stations, the conduct of that vote, the allocation of press space and television time during the campaign; and for connected purposes.
Nuclear power provides 12 per cent. of electricity generated in the United Kingdom, part of the CEGB's 28 per cent. total generating capacity above the forecast of future winter demand. Nuclear power comes from a variety of nuclear power stations, all of which have the common characteristics of widespread technical difficulties and delay in being brought into operation. All Magnox reactors have been downrated and the AGRs have suffered immense delays in being brought into use—Dungeness B 10 years late, Hartlepool eight years late, Heysham A six years late.
Two further power stations of the AGR pattern have been approved and three are close to becoming operational. It seems sensible, therefore, to consolidate our position and improve our existing techniques and safety and evaluate the existing nuclear stations rather than to embark, as the Government propose, on a further programme from 1982 onwards of 10 pressurised water reactors of the same family as the Three Mile Island type in America. It is especially disturbing that the type of reactor favoured is the one in which the GEC has a commercial interest. If that type is chosen, it will give that company an enormous commercial advantage.
It is especially absurd for the United Kingdom to embark on such a programme when we are rich in coal reserves, with at least 300 years' supply, and oil reserves which will make us self-sufficient for at least 20 years.
However, it is also true that fuel is finite. The proposition is put that only nuclear energy can help us to provide the necessary amount of energy resource that we need, but Professor Joseph Rotblat, writing in The Guardian on Thursday 29 May, with a comprehensive estimate of the calculations ascribed to nuclear energy, took a different view. He said:

 Straightforward calculations can show that we have been misled about the potential of nuclear power and that in reality it can make only a small contribution to the world's energy needs over the next 50 years.
The article was a learned and comprehensive exposition of that point of view. If Professor Rotblat is right, by embarking on further new sites we are possibly endangering present and future generations for no possible purpose. My proposed Bill would enable these arguments and those of the proponents to be deployed in a referendum across an area about 30 miles in diameter, and provision would be made for the Home Secretary to accept representations for a larger area to be involved in the referendum.
In my view, referenda should apply only to unusual and special circumstances. Going nuclear in such a massive way is certainly unusual and constitutes special circumstances that demand special consideration. The immediate effect of leaks of radioactivity in the air or on the ground, as at Windscale, is in the area adjacent to the power station. In the Windscale leak, there was a precautionary ban on the consumption of milk within a radius of several miles of the power station. It is in the area in proximity to the nuclear power station sites that there would be the greatest loss of civil liberties due to the movement of nuclear fuel and spent material in the area.
Legislation already gives wide powers to special police supervising the movement of radioactive materials to carry and use firearms. To emphasise further the special nature of the position of people living in the area of a proposed PWR, the notes prepared by the Department of Energy for the Library contains the following comments:
 The possibility of a serious accident involving a release of radioactivity capable of affecting the nearby population is considered extremely remote. Nevertheless, it is prudent to have measures for the protection of the local community ready against such an eventuality. The operators of nuclear installations are therefore required by the conditions of the nuclear site licences to make preparations for dealing with emergencies.
Emergency arrangements are set out in a site emergency plan which each licensed operator is required to submit to the Health and Safety Executive. The plan covers: (a) on site organisation and arrangements; (b) off site arrangements in an emergency, for example, the evacuation of the neighbouring population, and the monitoring of radioactive levels, and (c) arrangements with outside


bodies, such as local authorities, emergency services and Government departments. The local emergency services would be able to call on such national bodies as the National Radiological Protection Board and the Health and Safety Executive for help and advice.
It is clear that there is in people's minds the possibility of a very real and serious emergency affecting the local population surrounding the site of a nuclear power station. That is made clear by the comments of the Department of Energy. It is interesting that so much responsibility lies on the shoulders of the Health and Safety Executive, which currently has 17 vacancies out of a total staff of 104 at the end of a recruitment drive prompted by shortage of inspectors which led in 1979 to the lowest average number of inspectors per nuclear installation for seven years. At the same time, the Health and Safety Executive faces cuts as part of the public expenditure cuts imposed by the Government.
All these disturbing factors could be made clear during the referendum campaign, which, under the Bill, would last no more than a month. A scheme would be produced by the Home Secretary to provide for fair coverage in newspapers and on television. Newspapers would be controlled in much the same way as television is controlled during a general election campaign in their use of referendum material. This would help to stop the bias and distortion that occurs in the press during a general election campaign familiar to all hon. Members.
A fair allocation of space for each side would prevent any advertising pressure producing bias. Advertising itself in support of a particular view would be curtailed by limitations on expenditure that the scheme would place on the campaigning organisations registered under the scheme. Expenditure outside the registered organisations would be illegal for the period of the campaign.
It may be argued that planning procedures can take care of the views of a locality without the need for a referendum, but planning inquiries are in variably weighted in favour of the Establishment. The Government have enormous financial facilities as do the various nuclear organisations such as the CEGB and the Nuclear Power Corporation. They can afford to employ specialist lawyers

and specialists to present the case. Ordinary citizens in the locality have to raise their own money and obviously have difficulty in doing so. Ordinary people feel that inquiries tend to be weighted in favour of the decision made by the Government or the planning body making the application. The referendum would give them a direct and clear voice. Although such referenda are advisory to Parliament, it would be impossible, in practice, for Parliament to ignore the views of the people so expressed.
The Government have expressed the view that for the establishment of trade union closed shops there should be a vote of 80 per cent. in favour among those eligible to vote. I do not share the Government's view of the importance of trade union closed shops, nor do I endorse their determined attack on them. I take the view, however, that nuclear power stations represent a real and continuing potential danger to present and future generations under the wrong combination of circumstances.
Because of the great importance of the issue, I have decided that the voting pattern must demonstrate overwhelming support that a new nuclear power station is desirable. The criterion would be that adopted in the Employment Bill promoted by the Government—that is to say, 80 per cent. of those eligible to vote must vote in favour of a nuclear power station site for it to be approved. People would thus have an opportunity fairly to argue the merits of the case. If the arguments for a new PWR station are overwhelming, the vote would follow. If people have reservations, if they are wary of experts such as those who assured local authorities about Ronan Point-type flats or those who assured the people living near Three Mile Island, and if they do not want to risk radioactive leaks, contamination, genetic damage to themselves, their children and their neighbours, they should have an opportunity, in the absence of conviction to the contrary, to vote " No ". My proposed Bill would give them that opportunity.

Mr. Robert Maclennan: I rise to oppose the Bill. I recognise that the custom of the Ten-Minute Bill is to give hon. Members an


opportunity of raising an issue that they consider to be important. Frequently, they do so in the expectation that their legislation will not progress very far. That is not universally the case. Having successfully piloted a Ten-Minute Bill through all its stages to the statue book, I take the view that one should regard an occasion of this kind not as a mere propaganda occasion but rather as the initiating of legislation. It is, therefore, right that the House should refuse to give permission to what I venture to describe as a somewhat mischievious attempt to put forward a view about the nuclear industry that perpetuates popular misconceptions and does nothing to enlarge the understanding of the British people of the great issues at stake in providing for our power needs in an age when fossil fuels are no longer available.
I also oppose the Bill on the ground that a local referendum of the kind advocated by my hon. Friend is a profoundly undemocratic procedure, which in any event would prove unworkable and create considerable anomalies. The fanciful notion that the people who happen to live within 30 miles of a power plant are the only people who would necessarily be affected by it, or should be given a right to pronounce whether or not the plant is to be located there, is one that, on reflection, I believe the House would not wish to support.
The proposition gives further support to the idea that popular local agitation should be encouraged to lead to decisions that may have national importance being overridden. That is in line with the policy that was espoused in Scotland

Division No. 331]
AYES
(4.12 p.m.


Allaun, Frank
Flannery, Martin
Marshall, Jim (Leicester South)


Alton, David
Fletcher, Ted (Darlington)
Meacher, Michael


Benn, Rt Hon Anthony Wedgwood
Foot, Rt Hon Michael
Mikardo, Ian


Bennett, Andrew (Stockport N)
Ford, Ben
Mitchell, Austin (Grimsby)


Booth, m Hon Albert
Foster, Derek
Morris, Rt Hon Alfred (Wythenshawe)


Brown, Hugh D. (Provan)
Freeson, Rt Hon Reginald
Morris, Rt Hon Charles (Openshaw)


Brown, Ron (Edinburgh, Leith)
Freud, Clement
O'Halloran, Michael


Callaghan, Jim (Middleton & P)
Garrett, John (Norwich 8)
O'Neill, Martin


Carmichael, Neil
Graham, Ted
Parry, Robert


Carter-Jones, Lewis
Grant, George (Morpeth)
Penhallgon, David


Coleman, Donald
Haynes, Frank
Price, Chrstopher (Lewisham West)


Cook, Robin F.
Homewood, William
Race, Reg


Crowther, J. S.
Hooley, Frank
Richardson, Jo


Davies, Rt Hon Denzll (Lianeill)
Hughes, Roy (Newport)
Roberta, Allan (Bootle)


Davis, Terry (B'rm'ham, Stechford)
Johnson, Walter (Derby South)
Roberts, Ernest (Hackney North)


Deakins, Eric
Kerr, Russell
Roberta, Gwilym (Cannock)


Dean, Joseph (Leads West)
Lestor, Miss Joan (Eton & Slough)
Robinson, Geoffrey (Coventry NW)


Dixon, Donald
Litherland, Robert
Rooker, J. W.


Dubs, Alfred
Lofthouse, Geoffrey
Ross, Ernest (Dundee West)


Eastham, Ken
McDonald, Dr Oonagh
Sheerman, Barry


English, Michael
McKay, Allen (Penistone)
Sheldon, Rt Hon Robert (A'ton-u-L)


Ennals, Rt Hon David
McKelvey, William
Skinner, Dennis


Evans, loan (Aberdare)
McNamara, Kevin
Stallard, A. W.

last week by the Scottish National Party, which proclaimed at its conference in Rothesay that a campaign of civil disobedience should be initiated against the decision of successive Governments to locate a nuclear power station at Torness.

Calls for civil disobedience are, in any language, calls for breaches of the law. I do not believe that breaches of the law should be advocated by any democrat. Equally, I believe that those of us who believe in parliamentary democracy take the view that Parliament is the right place to make decisions of this kind and that Governments must be accountable for these major decisions in this place. Those decisions should not run the risk of veto as a result of agitation in a particular local community.

Local community interests are well protected by the planning laws that this House has passed. Where wider considerations are involved, it is open to Governments to set up inquiries that are analogous to that which was held in the case of Windscale, allowing full considerations of local and national interest to be properly canvassed at great length, and giving local people a full opportunity to express their views on these issues.

My hon. Friend's suggestion is nonsense, and I hope that it will be resoundingly rejected by the House.

Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and nomination of Select Committees at commencement of public business):—

The House divided: Ayes 75, Noes 188.

Stewart, Rt Hon Donald (W Isles)
Wilson, William (Coventry SE)
TELLERS FOR THE AYES


Welsh, Michael
Winnick, David
Mr. Dennis Canavan and


Wilson, Gordon (Dundee East)
Thomas, Dr Roger (Carmarthen)
Mr. Bob Crver




NOES


Adley, Robert
Grist, Ian
Pege, Rt Hon Sir R. Graham


Altken, Jonathan
Gummer, John Selwyn
Page, Richard (SW Hertfordshire)


Alexander, Richard
Hamilton, Hon Archie (Eps'm&Ew'll)
Parkinson, Cecil


Amery, Rt Hon Julian
Hamilton, Michael (Salisbury)
Parrls, Matthew


Arnold, Tom
Harrison, Rt Hon Walter
Patten, Christopher (Bath)


Aspinwall, Jack
Haselhurst, Alan
Patton, John (Oxford)


Baker, Nicholas (North Dorset)
Heddle, John
Percival, Sir Ian


Bell, Sir Ronald
Hicks, Robert
Pink, R. Bonner


Benyon, W. (Buckingham)
Higgins, Rt Hon Terence L.
Powell, Rt Hon J. Enoch (S Down)


Berry, Hon Anthony
Hill, James
Prentice, Rt Hon Reg


Best, Keith
Holland, Philip (Carlton)
Price, David (Eastleigh)


Bevan, David Gilroy
Howell, Ralph (North Norfolk)
Proctor, K. Harvey


Biggs-Davison, John
Howells, Geraint
Rhodes James, Robert


Blackburn, John
Irving, Charles (Cheltenham)
Rhys Williams, Sir Brandon


Blaker, Peter
Janner, Hon Greville
Ridsdale, Julian


Boscawen, Hon Robert
Jenkin, Rt Hon Patrick
Rifkind, Malcolm


Bottomley, Peter (Woolwich West)
Johnson Smith, Geoffrey
Roberts, Michael (Cardiff NW)


Boyson, Dr Rhodes
Johnston, Russell (Inverness)
Robertson, George


Brinton, Tim
Jopling, Rt Hon Michael
Robinson, Peter (Belfast East)


Brocklebank-Fowler, Christopher
Kellett-Bowman, Mrs Elaine
Sainsbury, Hon Timothy


Brooke, Hon Peter
Kershaw, Anthony
Scott, Nicholas


Brotherton, Michael
Kilroy-Silk, Robert
Shaw, Michael (Scarborough)


Brown, Michael (Brigg & Sc'thorpe)
Kitson, Sir Timothy
Shelton, William (Streatham)


Browne, John (Winchester)
Lambie, David
Shepherd, Colin (Hereford)


Bryan, Sir Paul
Lamont, Norman
Shepherd, Richard (Aldridge-Br'hills)


Budgen, Nick
Lang, Ian
Shersby, Michael


Bulmer, Esmond
Lawson, Nigel
Sims, Roger


Cadbury, Jocelyn
Lee, John
Skeet, T. H. H.


Carlisle, John (Luton West)
Le Marchant, Spencer
Speller, Tony


Carlisle, Kenneth (Lincoln)
Lennox-Boyd, Hon Mark
Spence, John


Chalker, Mrs Lynda
Lewis, Kenneth (Rutland)
Spicer, Michael (S Worcestershire)


Channon, Paul
Lloyd, Pater (Fareham)
Squire, Robin


Clark, Dr David (South Shields)
Loveridge, John
Stanbrook, Ivor


Cockeram, Eric
Luce, Richard
Steel, Rt Hon David


Cocks, Rt Hon Michael (Bristol S)
McCrindle, Robert
Stewart, Ian (Hitchin)


Cope, John
Macfarlane, Neil
Stewart, John (East Renfrewshire)


Corrle, John
MacGregor, John
Stradling Thomas, J.


Costain, A. P.
MacKay, John (Argyll)
Taylor, Teddy (Southend East)


Dickens, Geoffrey
MacKenzle, Rt Hon Gregor
Temple-Morris, Peter


Dormand, Jack
McNair-Wilson, Patrick (New Forest)
Thomas, Rt Hon Peter (Hendon S)


Douglas-Hamilton, Lord James
McQuarrie, Albert
Thompson, Donald


Duffy, A. E. P.
Major, John
Thorne, Neil (llford South)


Eden, Rt Hon Sir John
Marlow, Tony
Thornton, Malcolm


Elliott, Sir William
Marshall, Michael (Arundel)
Townend, John (Bridlington)


Evans, John (Newton)
Mates, Michael
Trippier, David


Fairgrieve, Russell
Mather, Carol
Viggers, Peter


Faith, Mrs Sheila
Mawby, Ray
Waddington, David


Fell, Anthony
Mawhinney, Dr Brian
Wakeham, John


Fenner, Mrs Peggy
Mellor, David
Walker, BilI (Perth & E Perthshire)


Finsberg, Geoffrey
Miller, Hal (Bromsgrove & Redditch)
Walker-Smith, Rt Hon Sir Derek


Fisher, Sir Nigel
Mills, lain (Menden)
Wall, Patrick


Fitch, Alan
Mitchell, David (Basingstoke)
Walters, Dennis


Fookes, Miss Janet
Moiyneaux, James
Ward, John


Fox, Marcus
Moore, John
Warren, Kenneth


Fraser, Rt Hon H. (Stafford & St)
Morgan, Geraint
Wheeler, John


Gardiner, George (Relgate)
Morris, Michael (Northampton, Sth)
White, Frank R. (Bury & Radcliffe)


Garel-Jones, Tristan
Morrison, Hon Peter (City of Chester)
Wickenden, Keith


Glyn, Dr Alan
Morton, George
Wiggin, Jerry


Goodhew, Victor
Mudd, David
Winterton, Nicholas


Goodlad, Alastair
Murphy, Christopher
Wolfson, Mark


Gorst, John
Myles, David



Gow, Ian
Needham, Richard
TELLERS FOR THE NOES:


Gray, Hamish
Neubert, Michael
Mr. Robert Maclennan and


Griffiths, Eldon (Bury St Edmunds)
Newton, Tony
Mr D. N. Campbell-Savour

Question accordingly negatived.

Orders of the Day — FINANCE (NO. 2) BILL

(Clauses Nos. 10,17,18, 20, 23, 53, 68 and 91)

Considered in Committee. [Progress 2 June.]

[Mr. BERNARD WEATHERILL in the Chair]

Clause 18

CHARGE OF CORPORATION TAX FOR FINANCIAL YEAR 1979

Question proposed, That the clause stand part of the Bill.

Mr. John Garrett: The debate on the question whether clause 18 shall stand part of the Bill enables us to consider the taxable capacity, the profitability and the cash liquidity of the corporate sector at a time when we are peering into an industrial abyss.
The profitability of British companies is so rapidly in decline as to cause near panic in industrial management. Every day, in every company report, we can read of the concern of company boards of directors for the future of their enterprises. Even those who in theory support the medium-term economic strategy of the Government are worried about how to get through the next six months.
The exceptions to this, of course, are the banks and the oil companies, and in discussion of a later clause we shall consider the profitability of the oil companies. I hope that during the debate on this clause some of my hon. Friends will raise the question of the taxation of bank profits.
It is said that Ministers wish to see the odd exemplary bankruptcy to frighten both sides of industry into pay restraint. Today we have had the announcement of the liquidation of Bamfords, the agricultural engineers, established for over 100 years, after the firm got its workers to accept a 4 per cent. wage increase. Already company liquidations have reached a three-year peak, and the squeeze is tightening every day.
Gross trading profits are expected to collapse from £15 billion in 1979 to £2½

billion this year. That will mean that the non-oil corporate sector will need to borrow at least £10 billion in the fiscal year 1980. We are, therefore, entering a cyclical downturn, on which has been superimposed a squeeze on companies directly due to Government fiscal and monetary policy, which will further force up the bankruptcy rate and cut investment. It has already been established that investment in manufacturing industry will fall by up to 12 per cent. this year and by the same percentage next year, thus increasing unemployment.
Already this year 123,000 redundancies have been announced. That figure is higher than at any time since 1971. Today's papers have announced a redundancy programme for a further 2,500 workers at Lucas Electrical. The theorists who always tell us that reducing the quantity of money will reduce the rate of inflation usually neglect to explain the mechanism by which this will happen.
That mechanism is simply to force companies out of business. As the New Statesman observed on 14 March:
 Getting at the workers by ruining a substantial number of bosses is one of those theories that does not seem so attractive in practice 
or, as The Financial Weekly said in an editorial:
 We, and a good part of British business with us, we have seen enough.
The chairman of ICI, Sir Maurice Hodgson, in an interview with The Director, said:
 I am afraid that some companies are so sick that the dose may be too strong—some of our own companies are being damaged in this way.
The Economist summed up the situation on 29 March, saying:
 The object of a stern Budget is presumably to allow room for new sorts of entre-preneurship. This Budget does not allow big companies to show it Most of them face an intensification of their grinding liquidity and profit squeeze.
In a later clause we shall consider the Government's aid to small companies. However, that aid to small companies is trivial compared with the crushing effect on all companies of high interest rates and a deflated home market. To small companies it is rather like throwing a small handful of fertiliser on to seedlings that will find themselves under a foot of snow in the near future.
Since Second Reading, official figures have been released showing that in the first three months of this year industrial production fell by 2·2 per cent. and that the rate of fall in industrial production is accelerating. The Financial Times business opinion survey for April showed the lowest level of business confidence for six years. More than 40 per cent. of respondents expected to reduce employment to cope with the severe corporate squeeze. One-third of respondents thought that their liquidity was dangerously low. The developing recession will be the worst since 1945.
Cambridge Econometrics forecasts imply that engineering output will fall by 20 per cent. over the next three years and that industrial investment will fall by 32 per cent. between 1979 and 1982. The most comprehensive survey of business prospects was the industrial trend survey carried out by the CBI in April. Of the 1,843 companies surveyed, 47 per cent. said that they were less optimistic about business prospects than they were four months earlier. A total of 70 per cent. of respondents were already working below capacity. About 57 per cent. had below normal levels of order books and 30 per cent. said that they expected a decline in output and employment.
4.30 pm
Companies' liquidity was under such acute pressure from high interest rates that the CBI revised upwards the £6·7 billion financial deficit that it predicted for the financial and commercial companies sector. The largest companies, employing over 5,000 workers, were faring the worst, according to the survey. That was particularly so in the metal-working industries and consumer goods-producing industries. Such companies felt that they would have to cut back sharply on stocks, investment and employment. The real profitability of companies fell from 4¾ per cent. in 1978 to 3½ per cent. in 1979. The CBI expects a fall to 2 per cent. in 1980.
That is the consequence of a Government who are pursuing a monetary policy that clearly is excessively tight and that is forcing up the value of the pound and making export orders more difficult to win. It is forcing a reduction in new investment that might be impossible to reverse.

I doubt whether the agriculture machinery capacity of Bamfords, for example, will be re-created once the company goes into liquidation.
The excessive squeeze is felt at all stages of distribution and production. Retail sales have started to turn down and retailers' margins are being reduced to vanishing point. A wave of retailer bankruptcies is imminent. Industrial destocking—a classic symptom of the early stages of recession—has developed far faster than the Government forecast. The fall in stocks for the first quarter of this year was worth £570 million. A few months ago the Government forecast a £250 million drop for the first half of the year.
A recent survey by the Chemical Industries Association shows that capital spending will fall by 30 per cent. in the next three years. The chemical industry has been the biggest investor in British manufacturing and in recent years it has accounted for 90 per cent. of our trade surplus in manufacturing.
The short-term trends working party for mechanical engineering found that investment in that industry will fall by over 10 per cent. this year because of poor liquidity and the high cost of borrowing. It predicted a fall in orders in 1981 of between 10 per cent. and 20 per cent. below the 1979 level.
The construction industry is at an all-time low. The Federation of Civil Engineering Contractors says that the public sector investment in construction is now half the level of similar industries abroad. It says:
 A large part of the nation's vital capital structure is ageing deteriorating and not being built or enlarged.
In this key industry unemployment is running at 16 per cent. and involves 200,000 workers. The Government simply cannot ignore the contrary and counter-productive effects of their monetary obsession on manufacturing industry.
I have quoted surveys and opinions from representatives in industry, but we all know the effects from our constituencies. Every day in our local papers we read of lay-offs, warnings about layoffs, or closures. The strategy is supposed to be that reducing the PSBR should lead to a fall in interest rates and an increase in business investment. However, cuts in public expenditure directly affect the


private sector. As the private sector continues its heavy bank borrowing, interest rates will stay at a punitively high level for as far ahead as we can see.
Strict monetary targets mean high interest rates. Industry cannot live with both high interest rates and a high value for the pound. All that industry can look forward to is an absolute decline in gross domestic product and a shrinking home market, with intensified competition from imports.
The Treasury and Civil Service Select Committee report shows that the liquidity squeeze on companies will persist into the medium term. The Committee believes that the deficit in the non-oil sector will be a minimum of £6 billion in 1980. Some people giving evidence to the Committee made forecasts of a deficit as high as £13 billion in the corporate sector. The report states:
 the economic environment as described above will provide little help to the corporate sector—rather the reverse. The advice the Committee has received suggests that the cash squeeze on industry will not be a short-term phenomenon given the medium-term financial strategy. Indeed, it may well be that the corporate sector has to bear a large proportion of the overall burden of adjustment in order to meet the targets proposed in the financial strategy. In particular, the adverse corporate sector deficit likely to be experienced this year may well persist, if not grow, over the medium-term … In general, we are convinced that the Government should not only take a very active interest in what is happening to the corporate sector, but should have measures ready to relieve what could become a very damaging deficit.
I hope that the Treasury Minister will tell us what measures, by taxation or otherwise, the Government have in mind to reverse that damaging situation. The Committee's advisers thought that the decline in manufacturing output this year could be between 6 per cent. and 8 per cent. After four years of this Government we shall barely recover the output lost in their first year.
There are other contradictions in the Government's policies towards companies. Trade Ministers are trying to promote a new export drive, yet cuts in official export services mean that official trade missions will be halved. The funds available to the British Overseas Trade Board have been cut by £14 million. Assistance for market research in Europe has been ended. Charges for firms exhibiting overseas have been raised. Trade

associations have complained that the Government's cuts will dissuade potential exporters. The London Chamber of Commerce has said that the level of Government support for exports is minimal compared with that given by the Governments of our trading competitors.
In all, aid to industry will be cut by £1·2 billion, or 45 per cent, in the next four years. The cuts fall on sectoral schemes of assistance for modernising industry and include, for example, halving the money available to the national computer centre, our only independent centre for developing computer expertise and training. The CBI has already asked for cuts to be deferred until corporate profitability has improved.
Meanwhile, the Secretary of State for Industry told an audience in Chicago last week:
 I bring you good news. Britain, pioneer of the industrial revolution, is beginning the process of turning away from stagnation. The relative decline associated with the bindweed of State power, which has afflicted Britain for several decades, is being stemmed.
I always thought that bindweed gave stability to otherwise shifting terrain. The Secretary of State might have got his metaphor wrong, as well as his facts. He went on:
 Britain is in transition. Before very long, the thousands of healthy, successful businesses will no longer be overloaded. Britain will be on its way again.
One sometimes feels that one is intruding in a private dream world.
Let us examine the £2·7 billion turnaround required in the nationalised industries—from an external financing requirement of £2·3 billion in 1979–80 to a net repayment of £400 million in 1983–84. The whole medium-term strategy rests on this revolution in the financial performance of these industries, and yet they all need to plan huge new investment in gas gathering, nuclear power, new coalfields and new equipment for the benefit of their private suppliers.
The corporate sector is being bled to death by high interest rates, falling demand, rising exchange rates, cuts in Government support and cuts in public sector orders. The damage is incalculable. Our manufacturing industry will collapse in a welter of bankruptcies and unemployment. The squeeze on companies is a crude measure to frighten them into low


wage settlements, and it is doomed to failure. It is a policy of unbelievable crudeness and unfairness. The debate gives the Minister the opportunity to justify the Government's actions in regard to the liquidity and cash position of the corporate sector. Before long help will be too late.

Mr. Tarn Dalyell: I have given Treasury Ministers notice of the main topic which I wish to raise—the effect of corporation tax on sport. I rang the Minister of State's office and contact was made with lawyers attached to the Central Council of Physical Recreation. I have given notice of the detailed points that I wish to raise.
Before doing that, I wish to endorse what my hon. Friend the Member for Norwich, South (Mr. Garrett) said about the Federation of Civil Engineering Contractors. This morning Duncan Mac-Kenzie, the secretary of the Scottish section of the federation, contacted us formally and drew our attention to a statement by James Stevenson, the chairman of the Scottish section.
I do not wish to detain the Committee by reading at length from the statement However, it is a serious statement, which should be drawn to the attention of the Government. It states:
 Finally, the other great problem to which I must refer and which haunts many of our smaller members is that of Government's insistence on firm price tendering for public contracts of up to one year's duration. It is quite inconceivable to me how it can seriously be thought by people who should understand our industry that this policy is in the national interest and anti-inflationary. In my view, nothing could be further from reality.
I gave that quotation to support the point that was made so eloquently by my hon. Friend the Member for Norwich, South.
I wish to support my hon. Friend on one other issue, namely, the question of bank profits. There is great resentment in all our constituencies about the level of profits made by the Bank of Scotland, the Royal Bank of Scotland, the Clydesdale Bank or, south of the border, any bank that one might choose. At the same time, industry is faced with high interest rates and a home market that is so deflated that it is causing more worry than I have ever known during my public lifetime. It is no good saying that we go through ritual worries and ritual groans.

We are faced with far more than a ritual worry. Indeed, some of us would not confess to having ever indulged in ritual worries.
I wish to return to the specific issue of taxation of sport, of which I gave the Minister notice. Whether a body is corporate, perhaps as a company limited by guarantee, or an unincorporated association, it makes no difference for tax purposes. For income and corporation tax purposes, a company means a body corporate or unincorporated association. A company resident in the United Kingdom is subject to corporation tax on its total worldwide profits, which comprise both income and gains. A company is resident in the United Kingdom if that is the place where the central management and control of the company is exercised, regardless of the place where it is incorporated or legally constituted. To ascertain where the central management and control of an association is exercised, the Inland Revenue would have regard to where management meetings were held, and the residence of those who would be regarded as directors if the association were a corporate body.
There are no special rules or concessions for bodies that promote sport or recreation unless they are charities. Sports bodies may, therefore, receive Government grants from the Sports Council and at the same time pay corporation tax on their income. Is not that a classic case of robbing Peter to pay Paul? It is a question of swings and roundabouts. Given the serious financial condition of many sports bodies in an inflationary position, it is a little rough that they must pay corporation tax.
Foreign income is taxed as it arises in a similar way to United Kingdom income, but a credit against corporation tax payable is allowed for foreign income taxes paid limited to the United Kingdom tax actually charged on that foreign income. Corporation tax is charged at the rate of 42 per cent. for profits of up to £60,000, with marginal relief for profits between that figure and £100,000, above which level the full rate of 52 per cent. applies. A deduction of 11/26ths is allowed from capital gains, and the balance is charged to corporation tax at the full rate of 52 per cent., producing an effective rate of tax on gains of 30 per cent. The effective rate of tax on gains is 30 per cent.,


whether or not the lower corporation tax rate applies to other profits.
4.45 pm
Corporation tax is normally payable nine months after the end of the accounting period or, if later, 30 days after the issue of an assessment. Associations established prior to 1965 may have a longer interval between the end of their accounting period and the normal corporation tax due date of payment. Interest on overdue tax is currently charged at 12 per cent. per annum, and the interest is not tax-deductible.
Associations that carry on trades to finance other activities are liable to corporation tax on the profits from trading. They are also liable to tax on interest and investment income. Dividends from United Kingdom companies are not subject to corporation tax, because they are paid out of income that has already been charged to corporation tax. Income from land is also assessable, as are gains on disposals of investments and other chargeable assets.
That has a considerable consequence for sport. In normal circumstances, if I had just risen to my feet I would not ask the Minister to reply to these complex matters. But as he has had at least two weeks' warning, and as the Treasury Ministers have contacted the Central Council for Physical Recreation lawyers, I think that I am justified in asking for some comment from the Minister about corporation tax on sport.

Mr. Denzil Davies: My hon. Friend the Member for Norwich, South (Mr. Garrett) mentioned the problem of profits in relation to corporation tax. I wish to raise the problem of bank profits. In his Budget Statement the Chancellor of the Exchequer acknowledged that there was such a problem. He said:
 In recent weeks there has been a good deal of comment about the profits declared by the clearing banks. Some represent a ' windfall ' to the banks, which arises from the combination of high interest rates and the fact that interest is not paid on current accounts."—[Official Report, 26 March 1980; Vol. 980, c. 1466.]
He went on to say that some people would argue that, in principle, the profits should be subjected to an excess profits tax.

When the Financial Secretary replies, will he say what the Government are doing about that matter? We have been told that some research is being carried out by the Treasury into the question of bank profits. I hope that the hon. Gentleman will be able to enlighten the Committee about the Government's attitude towards bank profits.
I remind the Committee that bank profits over the past year have been enormous. For the year ending 31 December 1979, the National Westminster Bank declared a profit of £441 million; Barclays Bank a profit of £529 million; the Midland Bank a profit of £330 million; Lloyds Bank a profit if £280 million, and the Scottish clearing banks correspondingly high profits.
We do not know what part of the profits are United Kingdom profits and what part are world profits. That often depends on the accounting procedure that is adopted. However, the United Kingdom profits of two of the clearing banks have been increased by 90 per cent. in one case and 70 per cent. in the other. We are talking about large increases in profits both by the London clearing banks and by the Scottish clearing banks.
The point is put very clearly in a recent editorial in The Scotsman. I deliberately choose The Scotsman because we are talking not only about the London clearing banks but about the Scottish clearing banks. The Scotsman states:
 For the most part profits made by our leading banks are a function of Government policy. The higher interest rates are set then the better off become the banks. There is no question that the yearly reports recently published illustrate this relationship, with bank profits leaping by up to 90 per cent and more … Basically, the banks did nothing to earn such bonuses but carry on business as usual. They must be the envy of many a vexed entrepreneur "——
and the Government who apparently favour entrepreneurs are killing them off rapidly——
 borrowing money from them at over 20 per cent to attempt to raise his company's efficiency. They are also a source of potential embarrassment to the Government.
They are indeed a source of embarrassment to the Government.
That sums up the problem clearly and well. The banks are benefiting—I do not criticise them, because it is not their fault—from a monetary policy which is a consequence of the rate of inflation.


The Government having set the rate of interest at 17 per cent., the banks are lending at that level, or higher, and making vast profits at the expense of industry, especially manufacturing industry.
The reasons for increased bank profits are clear. The first is the high interest rate. We understand from what the Chief Secretary said last night that high interest rates will continue for some time. The Financial Secretary shakes his head. That means that they will not continue for some time.

The Financial Secretary to the Treasury (Mr. Nigel Lawson): I am confident that my right hon. Friend the Chief Secretary was not so unwise as to offer a prediction of either nature.

Mr. Davies: He was very melancholy. He is always melancholy, except when he is aggressive, and he got aggressive towards the end of his speech. That led me to think that perhaps he was not on very firm ground. He was very melancholy at the beginning about interest rates. If one reads the newspapers, as I do, one finds that the gilt market has fallen this morning. People who understand these matters obviously do not see much chance of interest rates falling, despite the £750 million from the EEC. This is nothing to do with the borrowing requirement; it is all to do with bank lending and interest rates. Therefore, we shall not see a fall in interest rates for some time. Indeed, over the whole period of this Government's tenure of office we shall not see much of a fall in interest rates. Even in four years they will not get inflation down much below 15 per cent. Therefore, we shall have very high interest rates for the next two or three years.
This is a problem not only of interest rates but of the banks not paying interest on current account deposits. The banks try to tell us that it costs them about 8 per cent. to collect money on deposits. That is because they are terribly inefficient. They have not even bothered to make themselves efficient. I think that they could probably reduce that cost well below 8 per cent. But let us take the figure at 8 per cent. It is costing the banks about 8 per cent. or 8½ per cent. to borrow this money and now they are lending it at 20 per cent. They are involved

in a marvellous business. They are making enormous profits and showing very little expertise for it. The high interest rates are the result of the Government's monetary policy.

Mr. James Dempsey: I am interested in the point that my right hon. Friend has made. I have had discussions with industrialists in my constituency. The banks close their eyes to any possible extension of industry in the hardest-hit unemployment area on the mainland of Scotland because the interest rate being demanded from industrialists is 22 per cent. Of course, 22 per cent. on a trading account year after year until the premium has been repaid is an extremely exorbitant charge for industry to survive. In consequence, unemployment is unfortunately roaring in my constituency.

Mr. Davies: My hon. Friend is quite right. If industrialists have to pay 22 per cent., why should they invest in plant and machinery? What sense does it make to build up a business when an industrialist can get 17 per cent. or 18 per cent. by leaving his money on bank deposit? Industry is borrowing not to expand or to invest but to stand still or to stop itself from going downwards and backwards. We are talking about lending at more than 17 per cent.—20 per cent., 21 per cent. and 22 per cent.
The problem is partly high interest rates, caused by the Government's neglect of inflation, and partly because the banks do not pay interest on current account. The combination of the two has created these vast profits. As I said, current account deposits cost the banks only 8 per cent., so they make a vast profit on the difference.
If interest were paid on current account, we would not have this problem. If interest were paid on current account, people would get that interest and presumably it would be subject to tax. The root of the problem is not only that high interest rates are afflicting the economy but that the banks are not prepared to pay interest on current account.
The Financial Secretary gave an interesting answer during Treasury Question Time recently which I thought was sympathetic. He admitted that the banks


were making a windfall profit. I accept his answer; it was very sensible. But what are the Government doing? The Chancellor of the Exchequer said that they were looking at it in some kind of way.
I do not suggest that it is easy to bring in an excess profits tax. The Financial Secretary is not a tax expert, but he is an expert on many other things. However, the Minister of State is a great tax expert. I do not know what Lord Cockfield is doing in this non-interventionist Government, but I am sure that he is doing something. [Interruption.] If not, I do not understand what five Ministers are doing in this non-interventionist Department. On the other hand, he is sitting in the House of Lords, no doubt thinking about these things Buddha-like and working out these schemes.
I am sure that it is possible for Treasury Ministers—the Minister of State with his great expertise, the Financial Secretary with his feeling for the financial sector from his background in financial journalism, and Lord Cockfield with his great expertise, having been in the Inland Revenue, Boots and everywhere else—to work out some kind of taxation system. The Financial Secretary should tell us how the Government intend to tax the profits of the banks. It will not happen just for this year; it will happen next year and the year after, as I shall discuss later.
Perhaps I may give the Financial Secretary a few suggestions. The Opposition do not have the expertise and learning that he has, but perhaps we may throw out a few suggestions. Why not start with an excess profits tax? It is not unknown in British Revenue law procedure to have an excess profits tax. No doubt it would have to be related to some kind of formula—deposits on current account, the amount lent by banks and the cost of collecting money. A formula could be devised.
I believe that the British Gas Corporation is now contributing to the Treasury's coffers some kind of tax on its profits. It is a kind of excess profits tax. If the British Gas Corporation has to pay an excess profits tax, partly as a result of Government policy because the Government have put up the price of gas to a greater extent than the level of inflation

for reasons best known to themselves, why should not the banks pay an excess profits tax? There is the example of the Independent Broadcasting Authority and the levy that is placed on independent television companies. Governments of both parties recognised that profits were made in excess of a certain level and a specific levy was placed on the Independent Broadcasting Authority.
I suggest that the Financial Secretary should also look at the petroleum revenue tax, because that is an excess profits tax. I know that the Inland Revenue will not agree. It gets upset if it is described as an excess profits tax, but it is one. It is an attempt to isolate a sector of the economy—the North Sea—and to say that over and above corporation tax it shall pay extra tax in respect of profits.
I know that this is a complicated tax to administer—I do not suggest that it would be easy—but why not isolate the profits from the banking community and subject them to a tax over and above corporation tax in the same way as profits from North Sea oil are subjected to a tax over and above the level of corporation tax?
It is possible to draw a ring fence round British banking. I do not mean British companies; I mean banking receipts in this country. I might include foreign banks as well. However, the Bank of England would get very upset. It does not like to do anything to upset foreign banks. But, leaving that aside, it is possible to use the analogy of the petroleum revenue tax to tax the banks.
My next suggestion might not appeal to the Government or, indeed, to the Labour Party, but why not tax lending? The Government are concerned about bank lending. That seems to suggest that bank lending—the credit supply—is now the real problem. Apparently, we have got the money supply under control, although some people do not believe it; but the Government believe it. The banks are lending money and the Government cannot reduce the interest rate, so why not tax lending? Paul Volcker, of the Federal Reserve Bank, has done so. He has imposed a tax on lending by banks which subscribe to the Federal Reserve Bank. Lending money at an interest rate of 22 per cent. and collecting money at 8 per cent. makes the profits. Why, then,


not kill two birds with one stone? The Chief Secretary to the Treasury is interested——

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The Chief Secretary to the Treasury (Mr. John Biffen): I am interested only because such an argument is being deployed from the Opposition Front Bench. Will the right hon. Gentleman share with the Committee his thoughts one degree further? In suggesting a tax on bank lending, would he vary the tax according to the designation of the lending?

Mr. Davies: Yes. Lending in the personal sector and lending through credit cards could be taxed. That would release a certain amount of money at a lower rate of interest to manufacturing industry. I am surprised that the Government have not considered that possibility. One reason why the Government are failing with their monetary policy is that they do not have a monetary policy. They have a credit policy. They raise interest rates to 17, 18 or 19 per cent. regardless of the borrower. Why not restrict personal lending? Bill Simon, the former United States Secretary of the Treasury, said that he would take away his wife's credit card so that she could not borrow money on it. Why not restrict personal lending so that there is money available at lower rates for manufacturing industry? Manufacturing industry is suffering from the Government's policies.
Let there be direct control over bank lending. The Chief Secretary should not appear as frivolous as he tried to appear when he intervened. There is a distinction to be drawn. The Government should look again at the question of credit cards. The people who will suffer from any restrictions on credit cards will be those who voted for the present Government. They are not suffering from the present monetary squeeze because they are borrowing at 17, 18, 19 per cent. or more on their American Express, Access or other credit cards. They are benefiting from the tax deductions and the tax reductions. Industry is suffering. The Government should shift their emphasis, control lending in the personal sector, and allow industry to borrow at lower interest rates.
There should be a tax on lending in those areas of the economy which are not

productive. The Federal Reserve Bank taxed lending, and interest rates have been brought down in the United States. The Bank of England will not like a tax on personal lending. The Governor will be very upset, and he will argue against it because he will not wish to upset the banks, and he tries to keep the Government and the banks happy. But the Government should look at this suggestion.
The reason why we feel that bank profits should be taxed on an excess basis, whether through a petroleum revenue tax or excess profits tax, is that we are entering an era in which banks and the financial sector will make a lot of money. Manufacturing industry will decline and there will be massive profits in the financial sector. That will probably not upset Conservative Members, because some would like to see this country as a sort of mini- or maxi-Switzerland. They would like the financial sector to expand, and they would not be too unhappy if the manufacturing sector declined.
The Government wish to reduce the public sector borrowing requirement. The Chief Secretary said recently that the Government's policy was to bring down the PSBR. But where will all that money go? It will not go to British industry. It will be invested in the financial sector. That means that over the years major profits will be made by the financial sector, and the manufacturing sector will decline more and more. As part of a larger issue, the Government should look at the development and increase in profits in the financial sector, and perhaps they should tax those profits at a higher level and use some of the money to try to save manufacturing industry. If they do not do so, it will go to the wall.
The National Westminster Bank now has so much money that it has decided to invest in the North Sea. It is to buy North Sea licences. Under the previous Conservative Government, the National Westminster Bank brought properties and got into terrible difficulties, and it had to be bailed out by the Bank of England. Now it has so much money that it cannot lend—because the Government do not wish it to do so—that it is investing in the North Sea. Perhaps the North Sea is not as speculative as property, but that is not the proper function of the bank, and that is why there is distortion


in the financial sector—caused by the high interest rates and by the fact that banks do not pay interest on current accounts. I ask the Government to look at the question of the banks. I hope that the Chief Secretary will tell us what the Government intend to do.
The stockbrokers' reports talk about mergers and more activity in the financial sector in the next few years because more money is being put into the financial sector. The split between the manufacturing sector and the financial sector is important, because not only is it a split between two sectors of industry; it is a split between one half of the country and the other half. In the main, the financial sector is concentrated in the South-East and the manufacturing sector is in the West Midlands, the North, Scotland and in Wales. This is a real problem.

Mr. Lawson: There are banks in Scotland.

Mr. Davies: Indeed, there are a few banks in Scotland. I accept that Edinburgh is a sort of secondary banking area. But in the main—and the Financial Secretary knows it—the financial sector of industry is in the South-East of England, and the manufacturing sector is in the North. Manufacturing industry will suffer while profits are being piled up in the financial sector.
The problem goes deeper than the question of the banks, and I hope that the Government will say what they intend to do. Some of the profits from the financial sector should be channelled to the manufacturing sector. The Bank of England did so in the case of Stone Piatt Industries. In its wisdom, it decided to use some of its money to rescue manufacturing industry.
I say to the Government " Tax the banks. Look at the financial sector. Use that money to save our manufacturing industry. Otherwise, we shall destroy our manufacturing industry, and we cannot live on banks, insurances and financial services."

Mr. Lawson: The right hon. Member for Llanelli (Mr. Davies) got a little carried away towards the end of his speech, as he usually does. I was particularly interested, and I am sure the whole Comittee

will be interested, to learn that the official Opposition are now committed both to a tax on bank profits and to a discriminatory tax on bank lending.

Mr. Denzil Davies: I am familiar with the hon. Gentleman's style. It is not the first time that we have met across the Dispatch Box. I am prepared to give him suggestions. One suggestion was a tax on bank lending. However, my main point was that there should be an attempt to tax bank profits. Does he intend to do that?

Mr. Lawson: Perhaps, having sat down, the right hon. Gentleman is having second thoughts. Perhaps the Opposition should try to come together—in the spirit of Wembley, or in any other spirit—to decide whether they are in favour of a discriminatory tax on bank lending. When they have made up their minds, perhaps they will be kind enough to tell the Committee so that we all may know where we stand.
The right hon. Gentleman asked me a straight question about where the Government stand on bank profits. I shall deal with that. Discussion of this question—and I know that it has aroused a great deal of interest on both sides of the House of Commons and of this Committee—has tended to focus on the profits of the big four clearing banks. This is almost inevitable, given both their size and the fact that their profits tend to be more cyclical than those of the banking sector as a whole because of their large numbers of current accounts, on which, as the right hon. Gentleman pointed out, no interest is paid.
The fact that last year, 1979, the four big banks together made total profits of £1½ billion before tax has inevitably caused a great deal of comment. But this must be seen in perspective. The clearing banks are very large businesses indeed, with world-wide deposits of over £70 billion, and employing—[Interruption.] I hope that the right hon. Member for Llanelli will listen, following his absurd remarks about these banks being only in the South-East. They employ a quarter of a million people throughout Britain. It is easy, therefore, to be mesmerised by their profits figure of £1½ billion and to see them out of the context of the huge scale of their operations as a whole.
Moreover, if the clearers' profits are adjusted for inflation, the picture becomes somewhat different. Historic cost accounting conventions in this respect inevitably give a misleading picture, as I am sure the hon. Member for Norwich, South (Mr. Garrett) will acknowledge, of profitability in an inflationary environment—particularly for banks, whose assets are very largely fixed in money terms. On a current cost basis, the big four clearing banks' profits were around £1 billion in 1979, which is less than two-thirds of the historic cost figure and, incidentally, represents a rate of increase substantially less than was achieved by them in any of the three previous years, when the right hon. Gentleman's party was in office. Moreover, the pre-tax current cost profit, expressed in real terms, was lower in 1979 than in 1973. The Labour Government, when they came to office in 1974, did not see fit to impose a special tax on bank profits.
So the big four banks' profits for 1979 need to be seen both against the size of their businesses and after making a proper allowance for inflation. At the same time, as I mentioned earlier, the cyclical nature of bank profits must not be overlooked. The peaks and troughs of the clearers' profits seldom if ever coincide with those of industrial and commercial activity as a whole.
When seen in perspective, therefore, the profits of the clearers are not as large as they seem at first sight. There is no doubt, however, that they remain substantial. I assure the right hon. Gentleman that I am not trying, and would not wish to try, to pretend otherwise. Nor do I come to this Committee as an apologist for the banks. There is no doubt, as I have said in answer to Treasury questions, to which the right hon. Gentleman referred, that part of the profits represents a windfall for the banks—arising from the fact that interest is not paid on current accounts, and, therefore, the high interest rates mean that the clearers can employ their current account balances much more profitably. This windfall element is not a sign of the clearers' enterprise or of their efficiency. Nor, of course, on the other hand, is it a sign of exploitation. It is merely adventitious.
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In part, these windfall profits reflect the cyclical nature of the clearers' profits. When interest rates are high, they make larger profits, which fall as interest rates fall. The right hon. Gentleman's confidence that interest rates will remain high for some time is not one that I share. I have confidence that they will come down.
These windfall profits can, however, be regarded in part as a by-product of the Government's determination to root out inflation by monetary policy, which necessarily involves high interest rates for the time being. As my right hon. and learned Friend the Chancellor said in his Budget Statement, there could, therefore, be a case in principle for a special tax related to the windfall element in the banks' profits. But a number of practical considerations have to be borne in mind. One of them is the enormous complexity of any attempt to define the windfall element.
The right hon. Gentleman said that there have previously been excess profits levies in British history. Indeed, there have been. The first of these in recent times was that introduced by the Conservative Government in 1952, which took no fewer than 35 pages of legislation. It is not a matter of a simple amendment to a Finance Bill. The right hon. Gentleman also referred to the petroleum revenue tax. That could not be embodied in a Finance Bill. It was a highly complex, technical, lengthy piece of legislation on its own.

Mr. Denzil Davies: Excuses.

Mr. Lawson: Another factor which must be borne in mind is that the prime use that the clearers have made of their profits is to strengthen their reserves. Nearly £900 million—almost three-fifths of total pre-tax profits—has been transferred to reserves. A sound banking system, as even Opposition Members will, I hope, acknowledge, is essential to a healthy economy. There is no doubt that by 1973–74 the clearers' reserves had fallen to dangerously low levels. Since then, they have slowly been rebuilding their reserves to satisfactory levels. With the additions to reserves for 1979, the clearing banks have achieved a ratio of free capital to deposits of around 1:20.


While this is relatively high by recent historical standards, banks are facing increased domestic and international risks in current turbulent economic conditions. This points to a need for the banks to maintain higher capital reserves. It is entirely desirable that bank's reserves should be built up now—in the phase of their cycle suitable for such a build-up.
Moreover, the banks have sustained a large and fast-growing volume of leasing business, which has done a great deal to support investment in manufacturing industry, especially in the large number of cases in which companies have insufficient taxable capacity to enable them to take immediate advantage directly of first-year allowances designed to support their investment in plant and machinery.
Overseas, too, the increased risks of international banking business are apparent, perhaps especially in the Eurocurrency markets. The huge OPEC surpluses are a further potential destabilising factor on world financial markets, and the banks inevitably need strengthened reserves to assist in the recycling of these surpluses, which is of the first importance.
All these developments, in their different ways, are likely to provide calls on the banks' reserves, which have been significantly strengthened by the 1979 profits.
Last, but not least, I should like to mention the contribution to the economy which is made directly by the banking system. It has been one of the most successful industries in terms of invisible earnings. Its strengthened reserves should enable this success to be maintained and, indeed, expanded and its contribution to the economy to be increased.
But, as I have said before, and as I say again now, I accept in principle that there could be a case for the special taxation of the part of bank profits resulting from high interest rates. It is undoubtedly true that there is an element of quasi-monopoly in the clearers' position. Against this, there is the fact, as I have already explained, that clearing bank profits, are not as high as they appear when adjusted for inflation. The clearers have used these profits to strengthen their reserves, which is in the interests of the economy as a whole—enabling them to support domestic business, including their leasing operations,

to compete internationally, to invest in future technology, and to cope with the increasing risks of both international and domestic business.
The present Government's policies are directed to getting inflation down and getting Government borrowing down, and thus getting interest rates down, so that the immediate cause of the exceptionally high clearing banks' profits will be removed. To introduce a discriminatory tax on the profits, legitimately earned, of one particular sector of the economy requires a very strong case to be made. In my judgment, that case has not been made in the case of the banks this year.
We have had two other contributions to the debate. The hon. Member for West Lothian (Mr. Dalyell) raised the question of sporting bodies and their tax. I think that he has been in correspondence with my hon. and learned Friend the Minister of State about this matter. The hon. Gentleman is a member of the Standing Committee on the Finance Bill and I understand that he intends to raise this matter on numerous occasions throughout the course of the Bill both in Standing Committee and on the Floor of the House. I am sure that he will get a fuller answer from my hon. and learned Friend.
However, let me say this relatively briefly. I accept that there is a problem. Indeed, this was accepted right at the beginning of the introduction of corporation tax. The Select Committee on Corporation Tax recognised that there was a problem and that some way of alleviating it should be sought. But there is a serious difficulty of definition. A consultative document was issued in August 1972. There were discussions with all sorts of representative bodies at that time, and the matter was raised in Parliament then and has been raised on a number of subsequent occasions.
No formula has yet been devised to discriminate satisfactorily between those cases that deserve tax relief and those that do not. The position remains that charities get concessions which bodies that are not charities, such as the sporting organisations to which the hon. Member for West Lothian referred, do not. I admit that there is a problem; he was right to refer to it Since 1972 successive


Governments have faced that problem, but no answer has been found.

Mr. Dalyell: That is a fairly reasonable reply. It is a pity that, apart from our discussions on the Finance Bill, the House has not had an opportunity, as was promised, to debate the Goodman report on charities and to go into the definition of a charity. Let us leave out of this debate the special needs of the British Olympic Association. When discussing tax on the sporting bodies, I hope that we shall not delve too deeply into the differences of opinion now revolving round the British Olympic Association. An argument can be made for designating bona fide sporting organisations as charities. In Committee upstairs, I shall ask why the Government's lawyers are reluctant to do that. I recognise that there are problems, but they are not insurmountable. At present the situation of the sporting bodies is parlous.

Mr. Lawson: The hon. Member for West Lothian has made that point several times. As he is a persistent parliamentarian, I know that he will continue to make it in Committee. If he succeeds in catching your eye, Mr. Weatherill, he may be able to discuss charities when we debate clause 53. I wish him the best of British luck.
It is not for the Treasury to define a charity. Still less is it for the Treasury to decide whether a debate should be held on the Goodman report. I am sure that my right hon Friend the Leader of the House will read in Hansard the hon. Gentleman's request. He will then decide whether time can be given for a debate.
The hon. Member for Norwich, South went over the top when he spoke about the plight of the corporate sector. I am sorry that he did so, because there are genuine difficulties. There was no need to exaggerate those difficulties. It is absurd to suggest that the problems are new and that they are solely the present Government's responsibility. He knows that the profitability of British industry has been declining steadily for the past 20 years. If he wishes to make party points, I could point out that the biggest decline occurred under the previous Labour Government. During their period of office profitability—in percentage terms—was halved compared with the period of office

of the previous Conservative Administration. The fall will be much less now.
The problem of the corporate sector is inevitable if we are to cure inflation. There must be a period of squeeze, when interest rates are high. That period should not last any longer than is necessary. The United States Government have been trying to cure inflation, and they have had to allow their economy to go into recession. Similarly, the British economy is going into recession. No one wants a recession, but it is inevitable if inflation is to be squeezed out of the system. It is an illusion to think that the war against inflation can be won without any casualties. We hope that there will be as few casualties as possible. To ensure that that is achieved, wage negotiations must lead to results that are as moderate as possible. Rising wage bills, more than any other factor, are squeezing profitability out of British industry.
The gloom that the hon. Member for Norwich, South seemed to exude from every pore should not be shared by the Committee. Our policies will succeed. Many people outside this Chamber hold that view. I shall refer to a more acceptable source than the section of the report by the Treasury and Civil Service Select Committee, to which the hon. Member alluded. I should like to quote from an article in the current issue of Barclays Review, written by Professor Harold Rose. He states:
 The deceleration of wage increases is likely to be only slow in 1980. But from now on rising unemployment is likely to be accompanied by a falling inflation rate; the effect of the switch from direct taxation to VAT will pass, and, because of the high level of interest rates throughout the world, commodity prices are at last declining. The result, if the Government holds to its course, should be a sharp downwards revision of price expectations in Britain from 1981, thus laying the foundation for renewed economic growth. The Government's second Budget will then have proved to have been a turning point ".
I believe that judgment to be correct.
I commend the clause to the Committee.

Mr. John Garrett: I have been disappointed. The Financial Secretary has done no more than read badly a press handout from the Association of Clearing Banks. He had notice that we intended to raise this question. It is clear that no action is being taken on bank profits. It is also clear to all hon. Members that the windfall profits of banks are so great that they do not know


what to do with them. The Financial Secretary did not answer the questions that I raised on corporate liquidity. This is the first time that he has attended or spoken in Committee. Perhaps he should get together with the Chief Secretary and the Minister. We have become accustomed to fuller and more detailed answers.
The Financial Secretary said that the corporate squeeze would continue, because it was necessary. He said that casualties were inevitable. He does not seem to realise that the casualties of the war being fought by the Treasury are deprived families. There have been over 123,000 redundancies this year and each redundancy means misery to a family somewhere. I thought that his final point was the height of arrogance. He found the review of Barclays Bank more acceptable than the report of the Treasury and Civil Service Committee, under his right hon. and most distinguished Friend the Member for Taunton (Mr. du Cann). No doubt the Treasury and Civil Service Committee will bear that in mind when it cross-examines the hon. Gentleman during its future deliberations.

Mr. Dalyell: With a smile, the Financial Secretary wished me the best of British luck. Am I to interpret that as meaning that he knows that the sporting organisations have a just case? It was not much use asking him to do anything. However, I understand his predicament. Some of my hon. Friends and I, together with the right hon. Member for Worthing (Mr. Higgins), have asked the Leader of the House time after time for a debate on this issue. We know that the definition of a charity is not the responsibility of the Treasury. The Home Office is responsible. However, there is a hybrid situation in which various responsibilities straddle Government Departments. It is high time that the House of Commons sorted out this issue. The sporting organisations are desperate for a solution. Heaven knows when it is proper to raise the question of corporation tax on sport.
The Financial Secretary airily said that I would have several opportunities to raise this issue in Committee. I shall ask his advice as to when one might properly raise this question during discussion of the Finance Bill. I ask the Chief Secretary and the Financial Secretary to talk

seriously to the Leader of the House. Before we get round to the Finance Bill next year, let us have behind us, out of season, a proper discussion of charity provisions.

Question put and agreed to.

Clause 18 ordered to stand part of the Bill.

Clause 20

CORPORATION TAX: SMALL COMPANIES

Question proposed, That the clause stand part of the Bill.

Mr. John Loveridge: The smaller business community is glad to welcome the encouragement of clause 20, which widens the differential rate of corporation tax so that smaller companies pay 40 per cent. while larger companies pay 52 per cent. Like other provisions affecting the smaller business sector, clause 20 must be seen in relation to the whole package of measures that the Chancellor of the Exchequer has put forward and that have given so much encouragement to that sector.
The Committee will have seen that a number of amendments to the Finance Bill have been tabled in the names of myself and some of my hon. Friends, the officers of the Conservative smaller businesses committee, and in that of my hon. Friend the Member for Surrey, North-West (Mr. Grylls). The amendments dealt with a wide range of matters; from the work of the jobbing gardeners at the small end of the small business structure to major provisions related to medium-sized firms. The fact that it was so easy to put down so many amendments demonstrates that many burdens remain for the small business sector.
We are anxious to relieve the small business sector because it is our belief that every small firm in the kingdom is a potential jobcentre for a return to full employment. We believe that the small business sector is the only clear way to such a return. Large firms will shed men and women as advanced technology develops. The whole economy suffers from a world depression related to oil price rises and to the continuing purchase of oil at high prices by United States firms for stockpiling.
This gloomy outlook is relieved to some degree by measures such as clause 20. The small business sector can lead the resurgence and recovery of the economy. In the United States two-thirds of all new jobs created over a period of years have come from firms with less than 20 staff. We know that four-fifths of those firms are younger than five years old. That shows what the small business sector can do. But is our small business sector strong enough? There is much evidence that it has been weakened over many years, especially at medium size or take-off point.
Let us compare the proportion of small and medium-sized businesses in the United Kingdom with the proportions in France, Germany, Japan and in the United States. In those countries we find that the small business sector is proportionately much stronger than in our own kingdom. Our small business sector is beset by many technical ambiguities. One example can be seen in clause 20. The purpose of this clause is to widen the gap from 10 to 12 per cent. so that small firms pay proportionately less tax and are thus encouraged to create growth in the economy. Yet built into the clause is the most extraordinary anomaly. At a certain rate of profit at the threshold, the tax leaps from 40 per cent. not, as one might suppose, to 52 per cent., but to a rate of 66 per cent! The first £70,000 of profits are chargeable at 40 per cent. This fulfils the Chancellor's intention to create growth. But the treatment of the next £60,000 of profits does not fulfil his intention. This is a " no-man's-land " of exceptionally high corporation tax!
What can and does happen in practice is that a director takes his money out of the business to spend rather than leave it in, because by taking it out he cannot have to pay more than his own maximum threshold, which would be at most 60 per cent. on earned income, or less for many directors. Thus, there is clear encouragement to take the money out and spend it rather than to leave it in the business for the purposes of investment, because if it were left in the business the charge would be 66 per cent.
That situation in fact defeats the Chancellor's object in putting his improvements into clause 20. I do not blame the Chancellor for this—it is part of one of

the ridiculous elements built into our tax system, which grow as Budget and Finance Bills follow each other in turn year by year.
The reason is plain. It is to make a sliding scale work, so that there will be a merger of the small business rate with the general rate when the £130,000 figure of profit is reached. That is a reasonable thing which ought to be attempted by the Government. What is not reasonable is the way in which it is done, which defeats the purpose by making a sudden segment of exceptionally high tax just at the point where the small firm is likely to grow into a medium-sized firm, just at the point where we want to encourage it most of all.
I hope that the Government will look at this situation again at a later stage to see whether there is not some way in which they can bring this nonsensical situation to an end. The costs of doing so would not, I understand, be very large, and in no single case could the improved relief be greater than about £7,000—in most cases much less than that. But it would create a sense of encouragement that is badly needed for growth.
This is just one example of so many situations in our system which hinder growth due to technical reasons, I believe that the Chancellor has thought of and has mentioned the possibility at some stage of bringing in an autumn Finance Bill in order to deal with technicalities. I do not know whether he has that in mind for this year, but I hope so because it would be an opportunity for him to deal with the many hindrances to the growth of the smaller business sector at one fell swoop.
There is one particular aspect about which small business men are concerned—the price of money. Every increase in interest charges paid by the business man enters into the costs of production and adds to sale prices. High interest rates are themselves, in this aspect and sense, inflationary. I know that it is dear to my right hon. and learned Friend's heart to bring them down when possible. It is particularly urgent to do so for small businesses even more than others. There is evidence that many small businesses are distressed because, instead of getting their money from bigger suppliers in 30 days' time, they have to wait 90 days,


and that in itself is a grave danger to small firms that are expanding, particularly those that do not have a substantial capital base.
Most British firms set their prices on a cost-plus basis, so that we find the high interest rates in particular affecting those which wish to sell their goods abroad at a time of general deflation and falling sales. It is important, therefore, if the Government decide for other reasons that it is imperative to keep these high interest rates for the time being, that they should work with the banking system to ensure that the banks help bolster up small firms that are particularly damaged by these interest rates through no fault of their own, so that they can be ready for the expansion in the economy when it comes.
The situation, though, is not as bad in 1979 as it was in 1976, when there were more bankruptcies recorded. However, there is danger ahead in the vastly reduced profits forecast for the next one or two years. Fears induced by cash flow problems may frighten many firms away from expansion not for months but for years to come. My hon. Friends who are the officers of the smaller businesses committee believe that if full reign is given to that sector now it can lead the way in conquering unemployment and all the attendant distress, in human terms, that goes with it.
We believe that it will take three or four years for the uptake of the encouragement to take effect. Therefore, the Government must act as they are doing with the encouragement in clause 20, but much more widely as well. They should act now so that the small business sector is ready to meet the demands of an improved economy.
I hope that the Government will pay heed to the heartfelt wish that I am expressing on behalf, not only of the officers of the committee, but of the small business sector throughout the kingdom. Those engaged in that sector can do the job that is required of them but they urgently need every help that they can be given. In that sense I am glad to welcome the clause. It is but one step, but it is a helpful one and it should stand part of the Bill.

Mr. Geraint Howells: Many hon. Members on both sides of the Committee

are worried about the plight of small businesses and the self-employed. When the newly elected Government took office in May 1979, my right hon. and hon. Friends were disturbed when they learnt that there was not to be a special Cabinet Minister to represent the small business community and the self-employed. It is a great pity that we do not have a Minister of Cabinet rank to represent the sector that we are discussing. Unfortunately, we have only an Under-Secretary of State holding special responsibilities to represent those in a small way of business. In my view, that is not enough. My right hon. and hon. Friends have always held the view that a Minister with full responsibility for small firms and the self-employed is essential.
Since the Government took office last year the small business sector has had to face vast problems. The problems have been far more difficult than was foreseen. There had to be a revival of interest in independent businesses. They were seen as a means of securing more employment and encouraging enterprise that would revitalise an important sector of the economy. I have always believed the small business man to be the backbone of rural communities in Wales, Scotland and England.
As a result of a great deal of Liberal pressure, the previous Labour Government made certain concessions that made life easier for small businesses and reassured them that at last a British Government were prepared to take their existence seriously and to appreciate their role in the economy. Since that promising beginning to what we all thought would be a new era for small businesses, the economic climate has deteriorated dramatically.
In many ways the small business has probably suffered more severely than the big business. That is because small businesses have smaller assets and inevitably feel more keenly the effects of a recession. In my conversations with small business men in past months, they have said that their chief worry is the rate of inflation, which has an effect on goods and services, and the crippling high interest rates that inhibit all their activities. Many flourishing businesses have seen their profits disappear. Many of them have been forced into liquidation.
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The Government do not appear to encourage the banks to give overdraft facilities, loans or even risk capital to those operating small businesses, especially if they are starters. A great deal has been said about bank profits and two-tier bank interest rates. There are many in this place who represent rural areas. I and many others wonder whether the Government will reconsider our proposal to set up a land bank, or a business bank, to help youngsters who are willing to have a go on their own in rural areas. If we had a bank of the sort that we proposed two years ago, help could be made available to small farmers and to those willing to start on their own. Risk capital should be given to genuine people.
There is no hope that British Leyland, ICI or Courtaulds will come into the rural areas. Therefore, such areas are dependent on small businesses. If an opportunity were given to those who wish to start on their own by the provision of risk capital, a step would be made in the right direction.
The Government must meet their election promises for small businesses or stand condemned. They must help the self-employed and the small business man and not hinder them in any way. Will the Chief Secretary, when he replies, that bank interest rates are to be lowered in the near future? That is the greatest problem facing business men, especially those in the small business sector. Will the Government consider introducing a two-tier system of bank rate—a special rate to help the small business man and the self-employed to start, and another rate for those who enter into personal borrowing to help themselves? If the reassurance were given to those who are willing to start on their own that the Government were prepared to consider a two-tier bank rate system to help them, they would be greatly encouraged. Against that background, the confidence of many business men would be restored.
I hope that the Government will be able to announce in the near future that the bank rate will come down. The survival of the small business sector is essential. I accept that the clause is a step in the right direction, although it does not go far enough. At times my right hon. and hon. Friends have felt like voting against

it, but having considered it positively we shall accept it. I hope that it will turn out to be a benefit to all concerned.

Mr. A. P. Costain: It is interesting to hear the Liberal Party's attitude towards small businesses. It was fascinating to hear that it feels that all would be well if only we had a Cabinet Minister responsible for small businesses. I thoroughly disagree with that. We have a first-class junior Minister responsible for small businesses. He is able to concentrate on that sector. If he were of Cabinet rank, he would have many other matters to worry about. It must be better for him to remain in his present position. The Liberal Party's spokesman, the hon. Member for Cardigan (Mr. Howells), shakes his head. It is obvious that he disagrees with me. Hon. Members in the Liberal Party have never been in the Cabinet. They do not know the amount of time that a Cabinet Minister has to spend outside his Department. I was parliamentary private secretary to a busy Cabinet Minister, and I know how Cabinet affairs occupy a Minister's mind.

Mr. Geraint Howells: Why then are the Secretary of State for Industry and the Minister of Agriculture, Fisheries and Food in the Cabinet?

Mr. Costain: Funnily enough, there has to be a Cabinet and therefore Ministers in a Cabinet. If the Secretary of State is in the Cabinet and he has an efficient junior Minister, his Department can get on with its job while the Cabinet gets on with its job.
I entirely agree that the country depends on small industries. There cannot be a large industry existing today that did not start as a small industry. Private enterprise depends on small industries. I welcome what the Government propose in the clause to encourage small businesses.
It was fascinating to hear the hon. Member for Cardigan talking about two-tier interest rates. Does he advocate a Government Department to decide who shall pay what interest rate? The banks assess interest rates against the profitability or viability of a business. The hon. Gentleman advocates that, where there is more risk in a business, there


should be a lower interest rate, which is contrary to banking practices.
I welcome the clever and clear proposal in the Bill that risk capital put out to encourage small businesses shall not be subject to interest. It takes its chance in the success of a company by being invested in ordinary shares. Money that is used to buy ordinary shares will pay no interest, because it anticipates the overall profitability of the company. That proposal is far more preferable than fiddling about with interest rates, which would require a large bureaucratic organisation.
I am also fascinated to learn that the Labour Party believes that the best way to bring down interest rates is to tax lending. Do the Opposition really believe that taxing interest will bring down interest rates, and that if there is a super tax on banks they will decide not to make so much money?

Mr. John Garrett: That is a gross misrepresentation of the argument of my right hon. Friend the Member for Llanelli (Mr. Davies). My right hon. Friend was asking only for a tax on the windfall profits of banks, which is clearly justified.

Mr. Costain: I am sorry that the hon. Gentleman feels that I have misrepresented his right hon. Friend. Let me put it this way. Is it not good Socialist policy to penalise the successful? The successful are helping British industry. Britain is an international banking force. Do we want to inhibit our banks from being able to compete world-wide? The Opposition should think again if they want to help the country get back on its feet.
I welcome the clause.

Mr. Garrett: I understand that the debate was asked for by the Government Back Benchers to demonstrate their care for small businesses. I look forward to some hours of their advocacy. Perhaps hon. Gentlemen will flood into the Chamber after their tea break.
I remember the hon. Member for Upminster (Mr. Loveridge) as a colleague on the Expenditure Committee with a wide experience of small businesses. He made a plea for the small business community, which I hope the Government will consider.

Clause 20 embodies a relief in corporation tax for small businesses which was made much of by the Chancellor of the Exchequer in presenting his so-called enterprise Budget. The Government talk of assisting and encouraging small businesses but offer only modest help in the Finance Bill and in this clause.

The small business sector is being severely damaged by Government fiscal and economic policies in three main ways. The first is by high interest rates. They are of particular importance to a seedling company trying to raise capital for plant, equipment, stocks and work in progress. It is clear from the report of the Treasury Committee on the public expenditure White Paper, the medium-term economic assessment included in it and speeches by Treasury Ministers, that we cannot look forward to a substantial reduction in interest rates in the foreseeable future. High interest rates are an integral part of the monetary monomania that has seized the Government.

The second way in which small businesses have been hit by the Government's policies is through cuts in public expenditure—for example, the cuts in schemes to assist industries, which were a successful element in the Labour Government's industrial policy. Selective assistance schemes for the footwear industry in my constituency were aimed specifically at small companies. There was a size limit above which a company was not eligible. That assistance made a great deal of difference to the footwear industry in my constituency. The bulk of the selective assistance for the foundry and textile industries also went to small businesses.

Cuts in public expenditure have also affected purchasing by public corporations. The Association of Independent Businesses is urging the Government to expand public sector purchasing. The turn-around required by nationalised industries will lead to no signficant increase in business for small businesses.

There is then the direct effect of cuts in public expenditure on small builders. About 290,000 of the 1·3 million small busineses in this country are in the building trade, which will be decimated by cuts in public expenditure, such as the ending of all local authority new house building within the period of the public expenditure White Paper. The building


trade is one-quarter of the small business sector, and the result will be enormously damaging.

The third effect of the Government's economic polices on small businesses is through deflation and falling demand. Manufacturing output is expected to decline by 6 per cent. to 10 per cent. in a single year, which is unprecedented. Small businesses will be least able to survive. Taxation relief of the order proposed in the clause, amounting to about £20 million a year, is nothing compared with the loss of markets and the level of interest rates.

In this small business man's Budget, the assistance is also pretty small and largely cosmetic. On 29 March The Economist summed up the situation when it said:
 Small businessmen are aided not just because they are beautiful, but because aid to them is cheap. The word ' negligible ' features heavily in the tables of the financial statement and budget report (the ' red book ') which quantify the impact of company tax reliefs.

If one looks at those tax reliefs through the financial statement in the Red Book, one finds that they are so small that they are not worth registering in the criteria of our system of national accounts.

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On 2 May the Small Business Guardian summed up the situation with regard to these enterprises by saying:
 The ability of small firms to do any of the things expected of them will be severely curtailed if the numbers going out of business as a result of that aspect of Government policy "—
monetarism—
 exceeds the number being created through the Government's other policies aimed at encouraging the formation of new firms.
It went on:
 Already there is concern at where help for firms in difficulty may come from as the Government insists that it is committed to a policy of non-intervention in the workings of the market place … Some banks are already beginning to put up the shutters to further lending to smaller firms, a sector far more heavily dependent on loans than others. As a result, with interest rates showing little sign of falling, more and more companies will find themselves paying more on their borrowed capital than they are earning on marginal capital employed, severely undermining their ability to meet their short-term commitments. An indication of how the situation is developing is given by the dramatic increase in business failures in the first quarter of 1980…

Dun and Bradstreet point out that small firms are particularly vulnerable as not only can they least afford the high cost of borrowing, their sales are often tied to the fortunes of one market. While the loss of a single major contract may be damaging to a large company, for a small one it can mean the difference between solvency and bankruptcy. At present costs are rising in a declining market, which could mean disaster for many a small firm as there is no immediate relief for anyone relying on high interest loans for survival. Rising costs do not only cause bankruptcies, of course, they can also mean that projected and much needed new jobs fail to materialise.
At the same time as being regarded as one of the main engines for regenerating the economy and alleviating the unemployment problem, small businesses are being hammered by the Government's policies and the effects of high inflation and high interest rates. Those are the conscious policies of a Government who pursue the teaching of Professor Friedman in economic affairs. If one reads his books, one can see that the consequences are inevitable. The problem is exemplified by the complaints of small business men, which were spelt out in an interesting letter to The Times on 20 March headed:
 ' Silly monetarism ' hurts the small businessman ".
That sums it up. Mr. Edward Frewin said in that letter that he and his wife run a small business. They started in 1967 and now employ nine people, five of whom had been taken off the dole queue. He finds his business crippled by:
 1. Usurers' interest rates, making our £50,000 overdraft virtually impossible to service and creating the unbelievable rent of £3.47 per sq. ft. for warehousing. 2. An overstrong pound preventing us from selling into many countries but particularly North America. 3. Increased VAT which caused a dramatic collapse in the home market. 4. Increased national health contributions to add to our already rapidly increasing wages bill caused by 19 per cent. inflation. 5. 20 per cent. increases in office and factory rates. 6. Further increases in our overheads from electricity, telephone and the amazing postal charges. 7. Now, past and planned increases in petrol prices puts our representatives jobs in jeopardy. These items were all directly caused by this Government's silly monetarist policy. I, in common with most of the business community in this country, cannot wait for the return of the sensible politics of maintaining the delicate balance between monetarism and planning the economy.

That is not the only source. I am quoting not Tribune but impeccable small business sources. Mr. E. A. Naptin, the regional chairman of the Association of Independent Businesses, has drawn


hon. Member for Upminster drew his remarks, which may not be relevant to British experience.

and increases in rates. He said in a letter to The Times that in our large cities small firms had seen a decline in the volume of local authority housing available for staff and the refuse collection service available for industrial waste, together with cuts in main and secondary road provision and education. He said:
 All these features represent cost constraints to the development of locally based industry and employment which many authorities "—
he might have added the Government—
 claim to want.
Record rate rises this April will hit the small business sector, which is already suffering from high increases in rents, electricity and interest charges.

The London Chamber of Commerce and Industry, in its fifteenth report on manufacturing industry of 21 April, referred to a frightening decline in small businesses and showed that 35 per cent. of companies were facing falling domestic orders. It said that an erosion of the capital base was gathering momentum at a frightening rate and added:
 Without an upturn in demand, the heart of our manufacturing industry will be eaten away.

Thirty per cent. of companies surveyed reported falling production. The percentage of businesses reporting a scaling down of their investment plans had more than doubled in a year. There was also a fall in the number of businesses investing in job-creating capacity.

Nobody would deny that we need a thriving small business sector in Britain if we are to have a secure and growing industrial base. I assume that that is common ground between us. It is also true, and has been shown over many years, that the rate of small business formation in Britain is lower than in other comparable countries. That should concern us all.

However, there is a tendency by the Government to inflate the importance of small businesses in job creation, particularly when the corporate sector is being reduced to rubble by all their other policies. Most of the evidence of the value of small businesses is based on an American study at the Massachusetts Institute of Technology, from which the

A recent study by Dr. David Storey attention to the damage caused to small businesses by cuts in public expenditure, particularly local authority expenditure for the Centre for Environmental Studies, an institution which itself is being savagely cut in size and scope by the present public expenditure cuts, concludes that
 even raising substantially the rate of new firm formation can have only a minimal impact on manufacturing employment, at least for a decade 
and that its impact will not be primarily felt in the depressed regions of the country. He concludes also that changes in the rate of income tax do little to encourage new firm formation.

There is little point in producing largely cosmetic changes to stimulate small companies when both large and small companies are being driven out of business by monetarist policies of high interest rates and cuts in public expenditure. The most important determinants of the formation and survival of small firms are demand and the price of capital.

What the clause does is rather like attending to the woodworm when the house is on fire. Like much of the rest of the Bill, the clause is totally overshadowed by the cult of monetarism—a death cult for all businesses, small and large. The Government's policies are pouring loot into the coffers of the banks and the oil companies—the big, powerful allies of the Tories—and starving the small businesses that they affect to support. The small business sector is becoming a wasteland through which is wandering a tribe of loony monetarists doing nothing more than gibbering slogans and keeping their fingers crossed in the hope that eventually the cult will deliver.

Mr. Richard Page: I said on Second Reading that, with the valuable political attribute of hindsight, the Budget might be viewed as the first real commitment by any Chancellor of the Exchequer to the small business sector. I believe that that is the case, and I reject the cynical remarks of the hon. Member for Norwich, South (Mr. Garrett). I believe that my right hon. and learned Friend the Chancellor of the Exchequer has taken the first step in a series of commitments to the smaller business sector.
I did not specifically refer to clause 20 in my Second Reading speech, but I


believe that the raising of the qualifying limit for smaller businesses from £60,000 to £70,000, with the additional marginal relief, is a further illustration of the Government's commitment. Unlike the hon. Member for Norwich, South, I do not reject it out of hand.
I shall not presume on the Committee's patience by talking about the importance of the smaller business sector to our economy. My hon. Friend the Member for Upminster (Mr. Loveridge) has already done that, and I have no doubt that over the years my hon. Friends and I will continue to plug the importance of that sector to our economy. We have to see this corporate tax relief as part of a package aimed at the retention of capital within smaller businesses, not only in their formative years, when they need help to expand and grow, but in the difficult transitional period that the whole country is going through.
One of the more illuminating events during discussions on the Bill has been the series of economic theories that have been paraded back and forth as providing a solution to our economic ills. I am reminded of the truth of the saying that if one takes six economists and one problem, one will end up with seven solutions.
As such, I admire the refreshing candour of the hon. Member for Kettering (Mr. Homewood), who said yesterday that when he was elected to Parliament he found that other hon. Members who spoke about economics knew as little as he did. However, despite all the theories advanced and all the speculation put forward, it seems a brutal fact that if the Government spend more than is earned the seeds of further inflation are laid, with all that it entails. The problems that flowed from Mr. Micawber being unable to balance his £1 budget in the days of Dickens is relevant today on a national scale. The only difference is that everyone suffers rather than one hapless individual.
Despite their breastbeating, Opposition Members must surely now start to recognise that there is growing evidence that the level of PSBR, coupled with a flat GNP in real terms, has a definite relationship to the rate of inflation. One has only to look back over five or six years of the previous Labour Government and note their public service requirement in relation to the level of inflation to see

how genuine that evidence is becoming. My fear is that public expenditure, especially that earmarked for revenue rather than capital projects will ultimately work into the system, to hit everyone, but more especially the small business sector—a sector that, because of its size and characteristics, is ill-equipped to look after itself.
The clause goes part of the way down the road towards protecting the retention of capital that is so necessary to combat the effect of inflation and to help future investment. While the clause will help, it is obvious that a reduction of MLR will come as a major boost. I shall net be as prudently gloomy as my right hon. Friend the Chief Secretary to the Treasury was yesterday, in a most powerful contribution to the debates in Committee, because I take considerable heart in the trend downwards in the money supply over the past few months and the difference in the calendar rate of PSBR in 1979 and the rate of PSBR in the fiscal year. I hope that with honour and with that sense of conviction that my right hon. Friend mentioned, steps can be taken in this direction in the near future if—I underline the word " if "—that trend of reduction in the money supply continues to take place. It will bring a boost to industry and to smaller businesses to create a lesser fall in our gross national product in real terms, and will more readily help close the expenditure gap. The clause is a considerable recognition of the contribution of the small business to our economy. I welcome it.

Mr. J. Grimond: Like other hon. Members, I stress the importance of small businesses to the economy. In many areas they are our main hope for creating new jobs. They are the one lively and expanding part of the economy in many parts of the country. It is not wholly true to say that the House of Commons has ignored them. Ever since I have been an hon. Member there have been constant speeches about them. Often, these excellent admonitions have not led to action or this has been cancelled by other factors. There is a danger of that happening again.
I welcome what the clause proposes. I reiterate a question that has already been asked. Why cannot a sliding scale be


introduced? It has been suggested that a figure might be put forward in an autumn Budget. I am not sure whether that is the right course. I do not think that Chancellors of the Exchequer need encouragement to introduce new Budgets. It is, however, right to stress the uncertainty and sharp increase that occurs after £70,000.
Small businesses groan under the amount of documentation that they are forced to undertake, particularly in relation to VAT. I wonder whether the Government have anything to say about that situation. The atmosphere has been against small businesses. It has been a far better bet for someone to go into part of the public service and obtain security and a pension. A small business man can look forward to nothing like that, although his life at times may be more agreeable.
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The most serious factor is the question of interest rates. Is it impossible to have a two-tier interest structure? I appreciate that this is difficult and could lead to a great increase in administration. I would, however, like the Government to examine the matter. I understand that the Swiss have a two-tier system, although not for this purpose. It cannot be impossible. It is known that the Swiss are expert in financial matters. If a two-tier system is out of the question, the outlook for small businesses is poor. Whatever is done under this clause will be more than offset by the high interest rates that those businesses have to pay.
I wonder whether the Government are examining the role of the savings banks. I constantly raise this matter, and equally constantly it is ignored. The savings banks in many parts of the country accumulate large quantities of local savings that are then removed from the local economy. Is it not possible to have some form of bank that would plough back some of this local money into productive enterprise in the areas where it is collected? I have persuaded the building societies to lend in Orkney and Shetland. For many years, the societies took money out of the area and put nothing back. Now they have agreed to put money back. I am still struggling, however, with the savings banks, which are inhibited by their statutory

duties. In other countries there are various forms of co-operative banks and other banks that do far more to mobilise local saving and lend to small-scale local industry. In spite of the efforts made over the years to fill the gap, that gap still exists in the financing of small scale industry at a reasonable rate. The joint stock banks and some merchant banks are excellent in many ways but I do not feel that they have yet grappled with this problem. I should like the Government to comment on the possibility of widening the scope of savings banks into new productive investment. I recognise that there is a savings bank unit trust, but that is not the same thing. I wonder also whether the Government can hold out hope for lower interest rates and some reduction in documentation.
The Government have been told that many small businesses find difficulty in getting payments from large businesses and public authorities. I wonder whether the Government can say whether their influence on the matter has had any effect. This is a constant and justifiable cause of complaint. I am sure that all hon. Members are on the side of small businesses. I hope that as a result of the debate they gain some practical advantage from these sentiments.

Mr. John Townend: I am a small business man. Listening to the hon. Member for Norwich, South (Mr. Garrett), I began to think that I must be operating in business in a different country. My experience and that of many small business men in the area that I represent,—an area with a level of unemployment of over 10 per cent—is one of optimism. There are difficulties, but for the first time in a long period there is a new move of realism that at last there is a Government in power sympathetic to the interests of small businesses, lifting the shackles of taxation off those in businesses and starting to lift a little of the bureacracy off their backs.
Opposition Members may laugh, but the reductions in direct taxation in the Government's first Budget have had an effect. A small developer in my constituency who specialises in building new nursery units for small businesses said that when he had made sufficient money to attract 75 per cent taxation he stopped work. Now that the top rate has been


reduced to 60 per cent., there is an incentive. That person is going round looking for development sites, building small units and letting them. There can be no doubt about the change of mood that has occurred.
One aspect with which the Government have not yet fully dealt—I trust that my right hon. and learned Friend the Chancellor will do so at the next Budget—is capital taxation on small businesses.
I welcome the clause. The reduction is modest, but it is as much as we can expect in a difficult year for the economy. I trust that it is only a start. Next year I should like to see a substantial reduction in mainstream corporation tax. That could quite easily be paid for by ending stock relief and reducing other reliefs. That would be particularly advantageous to small businesses, because the small business man, not having the advice of the sophisticated accountants who serve the large companies, often may not appreciate that if only he built up his stock in the few weeks before the year end he could reduce his tax burden. It is clear that the efforts by the large and medium-sized companies to get the benefit of stock relief is putting up the amount of borrowing from the banks and is helping to make it more difficult for the Government to control the money supply.
One important aspect for small businesses—I do not think that the average small business man feels that the Government have done enough in this direct-tion—is raising from their backs the dead hand of bureacracy. There have been modest changes in the Employment Bill, but the small business man is looking for many more reliefs from punitive legislation, which is aimed at large companies rather than small ones.
I accept the comments by Labour Members that the present level of bank rate is weighing down heavily on small businesses. That is part of the medicine that we have to take for living beyond our means in the past decade. However, small business men are particularly irritated when they have to make their contribution towards overcoming our economic difficulties but see the reduction in bank rate that they desperately await delayed because of the high level of public sector pay in the past year. They feel that they are making a sacrifice and that

it is wrong that public sector employees should be given 100 per cent. protection from the economic facts of life.
The Government's policy is beginning to work. Some of us think that if we had been a little harsher and tougher to begin with it would have worked sooner. However, everyone in the small business sector agrees that it is better to go slowly and bring interest rates down steadily and progressively than to reduce them prematurely in a way that may mean their being raised yet again.
Labour Members seem to ignore one factor in their discussion of the problems of small businesses—the factor of trade disputes. Small businesses often depend on sub-contracting. In the Midlands the small business sector has undoubtedly suffered because of the problems of the motor car industry. Those problems have not been of this Government's making; they are problems of weak management, bad industrial relations, too many strikes, bad productivity, and too many restrictive practices over a decade. In my area two moderately sized firms have had to lay off substantial numbers of workers in the past two or three weeks because of the drop in orders from the motor industry. There is a knock-on effect, because those firms will in turn reduce their orders to smaller contractors and sub-contractors.
Let us consider the plight of the building industry. Talking to small builders, I have been surprised to find that they are still short of good men. They could still get plenty of work if they could get the men. My area suffers from high unemployment, but one cannot without difficulty obtain the services of a plumber to deal with burst pipes. Equally, it is difficult to get a window cleaner. Labour Members who, judging from their comments, cannot possibly talk to small business men, blame all this on the Government. If there has been a reduction in local authority work that is in part because pay has pre-empted too large a proportion of local government's cash resources. As a result, capital expenditure and spending on maintenance have had to be reduced.
The small business sector is in good heart. It is more optimistic over the medium term to long term than are many of our big firms. The message that I am receiving and which I pass on to my


right hon. Friends is that the Government should remain determined to continue with their policy, because it is the only policy that is in the long-term interest of the small business sector.

Mr. D. N. Campbell-Savours: I shall endeavour to be brief in this debate, Mr. Godman Irvine, because I hogged the Floor a little yesterday and I shall want to catch your eye again later this evening.

Clause 20 seems to be a little strange in the context of what is happening in the country. It concerns a reduction in the corporation tax burden on smaller companies. We on the Labour Benches are endeavouring today to talk more about the problems that smaller industries have in reaching the threshold at which they will enjoy the lower tax burdens that the Government are proposing. Conservative Members seem to have overlooked that point in their speeches.

I speak with a somewhat explosive background, because I was a small business man and entrepreneur before being elected to Parliament.

Mr. John Townend: Why did the hon. Member make the change?

Mr. Campbell-Savours: Because I believed that there was room on both sides of the Chamber for people who understood the problems of smaller businesses. I do not necessarily accept that Conservative Members have a monopoly of understanding small business, or of the right to be involved in it. It is the prejudice of Conservatives that leads them to the wrong conclusions about the Labour Party on the question of entrepreneurs in society.
At the general election last year the Conservatives gave firm pledges to small business men and industrialists that they would create conditions in which those businesses would find it easy to operate. Yesterday I received a letter from a company in Lancashire. I do not intend to name the company, because it is located in another hon. Member's constituency, but I knew of this company some years ago. The letter sums up the position of small manufacturing industry today. The company produces moulded polythene containers. The letter states:
 We as a company should like to bring to your attention the critical state of industry in

general and, more particularly, our own. Since commencing business in 1974 we have enjoyed moderate success expanding slowly, purchasing our own factory and giving a reasonable service in the container field to industries including chemicals, textiles, tobacco, meat and many others. We have built up a small labour force over this time "—
if I am correct it is about 30—
 and in our opinion contributed to the well being of the county. Since September 1979 the availability of work is such that at this level we are becoming non-viable. Is it not time for a certain amount of purchasing power to be put back into the economy? Is it not time VAT was reviewed and the subsequent cash flow difficulties removed? Is it not time for interest rates to be reviewed and once again make it attractive to manufacture than to bank cash. We are in a battlefield but we cannot fight and survive if the economy is stagnant.
The interesting thing about that letter is that it comes from an industrial estate in Lancashire, and when I was last there half the companies on it were on short-time working. When one speaks to industrialists in that part of Lancashire they talk of the grim future that they believe they face in terms not only of the activities of central Government but of the international recession. Though they may accept that the international recession was partly responsible, they also believe that there is a duty upon the British Government to react to that recession by introducing measures which will have an impact and give them some protection during these days of considerable difficulty.
I am sure that Conservative Members will understand what I mean when I talk about the people on the road. They are the representatives who go out from door to door, from shop to shop, from factory to factory and from warehouse to wherever, selling on behalf of British industry and producers. Wherever one goes, one hears the depressing message that representatives cannot find the orders. I am sure that Conservative Members who have had a close relationship with representatives in industry will be aware that even those companies in which they have a secondary interest outside this Chamber are feeling the pinch of Government policy. Today. it has been recognised that orders are simply not there, particularly in small manufacturing businesses.
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It is unfair for the Financial Secretary to the Treasury to make repeated


statements on behalf of the Prime Minister and his hon. Friends, as he did yesterday, to the effect that the country must wait until the end of the Government's period of office for an upturn in the economy, because in the meantime jobs are being lost, as are the small businesses which are vital to the future of our national economy.
It is not this Government who have taken major initiatives in dealing with small businesses. It was the last Government who in 1974 appointed Ministers in the Department and introduced the stock relief scheme which, if Conservative Members were honest—if the hon. Member for Bridlington (Mr. Townend) had done his homework and asked manufacturers in his own constituency he would have discovered this—they would admit was the vital component in preserving the future of many companies.
I think that this Government's attitude to stock relief has, in the main, been fairly responsible, in that they have retained the scheme, pending the introduction of new forms of inflation accounting which will have a major effect in preserving smaller companies. Last year I wrote to my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) about stock relief. He pointed out the great benefits of stock relief to industry and said that over four and a half years industry had been able to avoid paying £6,150 million that might have been spent by a Labour Administration in areas such as the social services. That money was given back to many smaller industries to assist them.

Mr. Loveridge: I wonder why the hon. Gentleman feels that the Labour Party did so much for smaller businesses when in 1974 there were 3,720 company liquidations and when by 1976 that figure had risen to 5,939. Stock relief was indeed necessary, because the Labour Administration were driving the smaller business sector into the ground with multiple bankruptcies.

Mr. Campbell-Savours: I take the word of the hon. Member for Upminster (Mr. Loveridge), but if so many businesses were going bankrupt in 1974 I can only assume that the preceding years of Conservative Government must have been particularly difficult. I can assure the

hon. Gentleman that it is impossible for a Government to come into office and, within a few months, so transform the economy that 5,000 business men can suddenly disappear from the scene. When we deal with statistics on bankruptcy we should always grade companies according to the operations in which they are involved. I suggest that certain companies should not be in business at all. I would press for the expansion of smaller manufacturing industry.
I turn now to an area of particular interest to me, as a former small business man. I have raised the issue before and I shall raise it repeatedly in future. It concerns the establishment of a regional bank. I cannot understand why it is not possible for the Government to subsidise interest rates. Industry is saying that it needs subsidies, particularly in certain areas.
I believe that there is a strong case for regional subsidies to be paid and regional interest rates to be established in various parts of the United Kingdom. Such mechanisms would entice companies to come to the regions and also help smaller companies in setting up. Smaller companies find it difficult to start up, particularly in the regions, because of smaller markets.
Obviously, in areas of smaller population, smaller companies find it difficult to operate. In the larger areas and the conurbations, which have greater populations, smaller businesses find it easier to proliferate. Why do not the Government introduce some form of incentive to smaller company operation where, in particular areas—perhaps on the basis of a turnover ceiling—money could be allocated to companies through a clearing bank organisation? That would help such companies with cash flow difficulties.
The main problems of smaller companies, as was pointed out by my hon. Friend the Member for Norwich, South (Mr. Garrett), relate first to the market but, more importantly, to cash flow. If we set up a system whereby people in the regions have access to what I call cheap money, we shall in part resolve the problem, particularly if the money is advanced on the basis of discounted or factored invoices. That would mean that goods could be shipped by a company that would be allowed to convert the value


of those goods into cash for investment. However, the cash would have to be borrowed at sensible interest rates. That is a proposition that I have previously advanced, and I believe that it would have an immeasurable effect upon the possibility of developing, in the regions, the companies about which I have spoken.

Mr. Michael Shersby: I was surprised to hear the hon. Member for Workington (Mr. Campbell-Savours) praising the expertise of the Minister with responsibility for small businesses in the previous Labour Government. I seem to recall that the Minister concerned resigned from the Government because of the refusal of the then Prime Minister to channel more money into a bankrupt co-operative. That Minister was not replaced by the former Prime Minister. We do not retain good memories of the success of the hon. Member for Keighley (Mr. Cryer) who, fortunately for us, held that post very briefly.
I welcome clause 20 because it is an important contribution towards the Government's enterprise Budget. I believe the clause is in the Bill because the Chancellor has listened to small business men and to the views of his colleagues in the House, particularly Conservatives, who interest themselves in these matters. During my time in the House no Chancellor has been more receptive to the views of colleagues on both sides of the House about the problems of small business men and no Chancellor has responded in such a way.
We are all deeply grateful for the Chancellor's magnificent Budget, which is widely appreciated despite the fact that business men in both small and large enterprises face difficulties in a world which is in the midst of a recession. It is clear that the Chancellor has also paid special attention to the views of my hon. Friend the Member for Upminster (Mr. Loveridge), who is noted for his extensive knowledge of the problems facing small firms. I hope that the Minister will give a warm response to my hon. Friend's speech. I hope that he will be able to give an assurance that the Government will tackle the problem caused by the sliding scale for corporation tax. It is vital that we eliminate the sudden jump to 66 per cent. It is a serious hurdle which deserves to be tackled.
We have heard much in the debate about small business men obtaining bank loans. There has been much discussion inside and outside the House since the Budget about the desirability or otherwise of small business men having access to loans which are guaranteed or made available at differential interest rates. Partly as a result of that, and partly because of the initiative taken by my hon. Friend the Member for Upminster in Back Bench Committees and outside the House, important initiatives are being taken by the big banks, particularly by Barclays and the Midland. There might be others. They are doing everything possible to channel more funds to small firms which need them to start. There is no doubt that the banks are acutely aware of the need to help small firms wherever possible.
It is clear that the banks are willing to consider the possibility of selling back equity to small firms which are successful after a couple of years and after they have got off the ground with the help of venture finance.

Mrs, Elaine Kellett-Bowman: Does my hon. Friend agree that, although his constituency cannot take advantage of it, the European Investment Bank, with its steady and low rates of interest, is of immense value to small firms, which can borrow as little as £17,000 under an agency agreement?

Mr. Shersby: I am grateful to my hon. Friend. I agree that the European Investment Bank can play an important part. Small business men are not as aware as they should be of the facilities available. I hope that the bank will take an early opportunity to publicise its activities and the funds which are available.
The debate has ranged wide. Because of that, I should like to tackle one or two of the issues which have been raised by Opposition Members. One of the factors to which reference was not made in the long catalogue of rising costs was the enormous burden of rates. Rates have to be paid by small business men. Generally, rates in Labour-controlled authorities are higher than in Conservative-controlled authorities. Nothing will close down a small firm more quickly, or make it move to another area more certainly, than the imposition of crippling


rate charges. It has happened in one local authority after another. I warn the Committee that if the Labour Party persists in its spendthrift policies in local government, some areas will be denuded of small firms.
Of the 20 real big spenders in local government, 19 are Labour-controlled. One has only to examine the differences in rates between Lambeth and Wandsworth to recognise the different circumstances that firms in those two boroughs face.
The relief in clause 20 is of vital importance. With the other measures announced by the Chancellor in his Budget, particularly the introduction of enterprise zones, it will have a powerful effect on stimulating small business activity throughout the country. I welcome the clause as part of the package.
6.45 pm
My hon. Friend the Member for Bridlington (Mr. Townend) spoke about the mobility of labour and the difficulties which small firms experience in his constituency because of the lack of accommodation. The Government introduced shorthold tenancies in the Housing Bill as part of the enterprise package. When that Bill becomes law, many people, including council tenants, will be able to offer accommodation—or digs—to people who want to move from an area of low employment to an area such as Bridlington or Uxbridge, where there is employment. That is another important part of the total scene. Britain has not been noted for its mobility of labour. Clause 20 is welcome, but we hope that its provisions will be improved still further in the next Budget by particular attention being paid to the points raised by my hon. Friend the Member for Upminster and the 66 per cent. problem.

Mr. Dalyell: It is not very profitable to swap " yah-boos " across the Committee about whether one party's ministerial arrangements are better than another's. Those who remember my noble Friend Lord Lever when he was Minister will be under no illusion that he carried considerable weight in the previous Government. I leave it at that. I am not saying whether it is better or worse to have a Minister outside the Cabinet, but he might have more time to meet delegations. There are swings

and roundabouts. One cannot accuse the previous Government of being uninterested in small businesses.
I agree with the right hon. Member for Orkney and Shetland (Mr. Grimond) in one matter. From our constituency experience, we can be in no doubt that many small businesses suffer from the tardy payments by a number of big enterprises, both public and private. I am not sure what Governments can do to ensure that big organisations pay their bills on time. However, the lag in payment is a real and practical problem.
I should like to engage the Chief Secretary's attention on three issues. The first is the chartered accountants' issue. They say that the marginal rate of tax on profits between £70,000 and £130,000 is 66 per cent. and that it increases to almost 76 per cent. where the 15 per cent. profit restriction for stock relief purposes applies. The Scottish chartered accountants believe that in the interests of simplicity the system of marginal relief should be replaced by one where the various bands are taxed at flat rates. I do not know how much the Exchequer would lose, but it seems that there is a prima facie case for simplicity. I wonder what the Government's reaction is to that. Perhaps a flat rate would be sensible, taking into account the equity and efficiency of collection.
The second issue arises from correspondence from the Conservation Society to the Chancellor of the Exchequer. Copies were sent to the hon. Member for Carshalton (Mr. Forman) and myself. I have taken a sustained interest in the society's activities. On 23 January, it said:
 We wish to put forward again a proposal which we made last year, modified to meet the objections then made to it. We suggest that no Corporation Tax should be charged where a company's profits are less than say £10,000, with a marginal relief system designed to run out at say £20,000. This could be easily combined with a ' small companies rate ' system of the present type for higher profits. One advantage of having an exempt band would of course be a great saving in time and resources for the Inland Revenue as well as the small businessman.
The Conservation Society's case then is that
 If the concept of total exemption is not acceptable, we would nevertheless submit that the present differential between the rate for small companies and that for other companies—a mere 20 per cent. of the normal rate—is so small as to be no more than an ineffective


ocmplication and that the small companies rate should be no more than half the normal rate.
I have asked various people who know about these things what the sense of that proposal is, and I gather that it is in fact quite sensible.
On 13 May the Chancellor replied along the following lines:
 You make alternative suggestions for easing the corporation tax rate for small companies. One trouble with these is that they involve such a very high rate of tax on each additional £ of income in the marginal bands—over 80 per cent. in either case; and if one tries to get round this by extending the marginal bands, the cost increases.
I do not quite see why that should necessarily be so, or by how much. The Chancellor went on to say that he had considered
 how far it would make sense to help companies generally with their liquidity problems by major tax reductions, but this could be provided only at the expense of much higher personal taxation or higher borrowing and so higher interest rates. I decided that the best service I could perform for business was to give priority to reducing the burden of financing the public sector and so get down interest rates. But within the constraints I have also brought forward a long list of measures which will assist small businesses in particular and encourage those who run them. The major changes are the easements in capital taxation which complement last year's reduction in income tax; but in addition I am bringing forward a number of other measures. These do in fact include help in the area that you "—
that is, the Conservation Society—
 identified; the small companies rate of corporation tax is going down a further 2 points to 40 per cent., and the limits for the relief are being increased to £70,000 for the full relief and £130,000 for the marginal relief.
Yes, but, with respect, I do not see that that answers the perfectly sensible case that was made in the first place, and I should like the Chief Secretary, either now or at some later date, to give his mind to the case that was made by the Conservation Society. It may be possible to come back to it on Report if it is thought that that case is well founded. It does not seem to me to be all that costly; it seems sensible in terms of efficiency and it is certainly sensible in terms of the costs of collection.
The third issue that I wish to raise with the Chief Secretary is one that he may say he can do little or nothing about, but it concerns a problem that many of us are facing. I refer to the problem of

the independent garage that retails petrol in country areas such as the one that I represent.
The truth is that the pressures from the petrol supplying companies on these small garages selling petrol are now extreme. I suppose that what I am asking is that the Government as a whole should make contact with those who run Esso, Shell and BP to ask them what the policy should be, since overall it cannot be energy-saving-effective or, I suspect, cost-effective to put out of business many of the small garages in country areas. We all know that in the country areas of West Lothian and, doubtless, in the constituencies of all other hon. Members who represent rural areas, these businesses serve an important function for the community. If people have to go into towns to get petrol, it must be obvious—though I do not make too much of it—that quite considerable quantities of fuel may well be wasted through the very fact that there is no petrol point in the country areas themselves.
This issue has been raised by the Scottish Motor Trade Association and by a number of constituents. I shall spare the Committee any of the letters that I have received from constituents, but the motor trade representatives make this point:
 A considerable number of rural communities rely on personal transport for mobility. The ' Gas bar ' policy of Esso may in certain urban sites be beneficial but not in a rural situation where the present petrol station repairs vehicles, performs MoTs and generally provides an overall service to the community. Many of the sites which the oil companies allow to remain open will be redeveloped to ' pump gas ' with not other services provided other than a shop with Esso recommended goods on sale.
 In the short term, petrol prices remain competitive, but are they so on motorways—apart from the M8 which is a special case—where it is a distress purchase? Is it not a fair analogy to suggest that when rationalisation is complete the urban communities will be in a distress purchase situation? Already in Edinburgh, for instance, 57 per cent. of sites are owned by oil companies which account for 69 per cent. of sales. Admittedly at present prices are highly competitive, which is benefiting the Edinburgh motorist, but what is it doing to the already dwindling gallonage of, say, the independent retailer in the Borders or, for that matter, the tenant of a small site "—
in, say, West Lothian or East Lothian?
 It is, we feel, a deliberate creation of a whirlpool effect by oil companies capable of manipulation of prices. The end result will be to polarise gallonage and as a by-product


carve up Edinburgh into trading areas dominated by one or other of the major oil companies. This latter point is vehemently denied by the oil companies, who claim that they merely wish to retain their share of the market and to control retail prices.
The motor trade is aware from discussions with other bodies that its concern is not, as has been suggested, an " in-house " trade problem, but it concerns many others.
I put it to the Treasury that no Government can quite pass by this problem, as the Levite did, on the other side of the road, for the truth is that only Governments can do something about it. It is no good rural Members of Parliament going along in dribs and drabs and tackling Dr. Pearce or any other head of an oil company. There is some Government moral responsibility in this matter, and when we are discussing small businesses I must ask what is to happen.
Do the Government view with equanimity the prospect that a great number of small garages that could not remain as garages without the sale of petrol should be driven out of business by a policy that, so far as we can see, is determined by the major oil companies in competition one with the other rather than, in this case, by any advice from the Government? I hardly think that this Government—and rightly so—will give oil companies advice along the lines that they should put small rural garages out of business.
I state the problem. I do not want to impinge upon the patience of the Committee, but it is a real problem, it is urgent, and I ask that there be some comment on it.

Mr. James Hill: I wonder whether, when they pick up Hansard tomorrow and read this debate, our small business men will draw any crumb of comfort. There have been a lot of platitudes, and there has been a tugging across the Floor, with a " yah-boo " sort of attitude—" I can protect small business men better than you ". What the small business man needs, instead of a very low key debate, is real confidence. He lacks confidence today.
The small business man is under extreme pressure. He works long hours. I am talking about the small business, the business with the man who runs it and

three or four, or perhaps five or six, employees. Apart from working extremely long hours, he is the last in the pay queue. In some weeks, indeed, he will not be able to pay himself because he has not made ends meet. He is ploughing every possible penny back into his business. He is proud that he is a small business man. He is proud that he controls his own destiny under the umbrella of the State, but he is very hard pressed.
When the small business man reads the detailed series of letters just read out by the hon. Member for West Lothian (Mr. Dalyell), he will realise that this place is just a sounding box. We do not seem to have Members who understand the real trials of the small business man. We can only reflect the views of associations and large groups which write in. The small business man is the man one can go and meet in any pub in the evening and talk over his problems. He is willing to talk. He will not get any sustenance or delight from the debate today. What ideas have been suggested? The suggestion of a two-layer interest rate is unworkable. It is bureaucratic nonsense.

7 pm

Mr. Dalyell: Mr. Dalyell rose——

Mr. Hill: I shall not give way to the hon. Gentleman, because he is a constant interrupter in debates. In another Committee we had trials and tribulations with the hon. Gentleman. I shall not give way. I have only a few minutes in which to speak. There should be a form of justice in debate. I am making a few minor points. I am not trying to annoy any hon. Member, but I am definitely going to make my points.
The small business man will be depressed when he reads Hansard tomorrow. He will be depressed also because the procurement programmes of some of our nationalised industries are not aimed at buying British. They buy radar for British airports from American sources. A system is being established within the Inland Revenue whereby PAYE will be dealt with by computer. There is some doubt whether we should buy British for that. It is the same with everything that one could mention. We are about to split the Post Office. The telecommunications section, which will be under a new chairman, will have a tremendous purchasing bill.
In France, industries buy French equipment. President Giscard d'Estaing agreed that the French Post Office should buy for the Paris area 5,000 television screens to computerise the telephone directory. That process will be continued throughout France. We must begin to support the small business man in Britain.

Mr. John Garrett: I am sorry to interrupt the hon. Gentleman, but I am sure that he will give way to me.

Mr. Dalyell: The hon. Member for Southampton, Test (Mr. Hill) gives way to my hon. Friend only because he is an anti-vivisectionist.

Mr. Garrett: In view of the remarks of the hon. Member for Southampton, Test (Mr. Hill) about the need for public enterprises to buy British, I am sure that he would wholeheartedly support the important innovation introduced by the previous Labour Government, namely, the Offshore Supplies Office, which managed within three or four years to raise the proportion of North Sea oil equipment purchased from British sources from about 25 per cent. to more than 50 per cent. That is an example of Government intervention with which I hope he will fully agree.

Mr. Hill: I did not have the pleasure of being in the House when the previous Labour Government were taking such wonderful steps into the future. Unfortunately, one of those steps led them to the edge of the cliff. Had I been in the House, I would certainly have supported any suggestion to buy British. As long as there is a comparable product, and a way through the purchasing bodies of the nationalised industries, we must support the small business man. At the end of the day he is the man who receives the orders for small components. He can survive only on orders from above. It is only with high productivity that Britain can make the goods to sell to the outside world. I am sorry that I mentioned those one or two odd little matters, which are outside the power of the Chief Secretary—and quite rightly so. He does not want to direct any nationalised industry to buy British.
One of the most serious aspects for the small business man—once again outside the interests of the Committee—is the national insurance surcharge, which has

a most frightening effect. Although there is a great deal of force in the argument for reducing the minimum lending rate, one of the most traumatic experiences for any small business man is when, at the end of the month, he has to put together the PAYE and the national insurance cheque for the collector of taxes. That is most disheartening for all small busineseses.
As has already been said, there are the problems of rates, taxes—which are being reduced, for which every small business man is grateful—and the general overheads. The small business man can survive only in good premises with a good work force and a full order book. He needs the confidence that can be given to him only by the House. The sooner that we get down to making it possible for the small business man to gain that confidence after a debate in the House, the sooner Britain will become more productive, and the sooner it will become a prosperous nation once again, and not number seven or eight in the European league.

Mr. Biffen: We have had a most entertaining and ambitious debate on clause 20. We have been graced by the presence of my hon. Friend the Under-Secretary of State for Industry. His presence is a courtesy to the Committee and an indication of the Government's commitment to the small business sector.
I wish to speak briefly on the clause. When I have performed that role, and paid my toll to enter into the wider debate, I shall seek to deal with some of the points that were raised in speeches from both sides of the Committee and to comment upon the role of small businesses within our national economy.
The purpose of the clause is to set the rate of corporation tax for small companies. It contains two significant changes. The rate is cut from 42 per cent. to 40 per cent., and the profits limit is raised from £60,000 to £70,000, broadly in line with inflation. The corresponding marginal relief applies up to a figure raised from £100,000 to £130,000.
My hon. Friend the Member for Upminster (Mr. Loveridge), who initiated the debate, was joined by the right hon. Member for Orkney and Shetland (Mr. Grimond) and the hon. Member for


West Lothian (Mr. Dalyell) on the question about the smoothness with which the tax proceeds from £70,000 to £130,000. There is a formula, which I cannot commend for its simplicity, which, when applied to profits, effectively produces a sliding scale from £70,000 to £130,000. Most of the objections to that are based on the belief that the sliding scale should start at a lower figure, but the whole principle of the tax is not to apply a lower rate of tax to the first £70,000 of profits but to provide that the lower rate shall be available only for profits that are earned up to £70,000. It has been skewed to benefit small companies rather than the first tranche of profits of companies of whatever size.
The 40 per cent. small company rate compares with a 52 per cent. standard corporation tax rate. Clearly the Government believe that the measures should aid the cash flow problems in the small business sector, and help to solve its difficulties in raising finance. The cost to the Exchequer during 1980–81 will be £20 million, and for a full year it will be £35 million.
I wish to turn to the general debate which preceded my contribution——

Mr. Loveridge: Before my right hon. Friend does so, I hope that he will give us an assurance that the Government will carefully consider the matter of the scale at the point where the jump in tax is from 40 per cent. to 66 per cent., which has a sharply disincentive effect. I hope that the Government will think again on this matter.

Mr. Biffen: I hope that my hon. Friend will read carefully what I said a few moments ago, explaining why the formula that we have employed in the Bill was chosen.
In answering the general debate, I refer first to the speech by the hon. Member for West Lothian, partly because I want to perform the blessed role of peacemaker. A misunderstanding arose about the respective merits of former Ministers with responsibility for small businesses. My hon. Friend the Member for Uxbridge (Mr. Shersby) had in mind the hon. Member for Keighley (Mr. Cryer), not Lord Lever.

Mr. Dalyell: Ah!

Mr. Biffen: " Ah! ", says the hon. Member for West Lothian. Whether or not one agrees with the sentiment, one can understand how easily confusion could arise unless one were clear about the person at whom the remarks were directed.
I shall give my mind to the comments made by the hon. Member for West Lothian arising out of correspondence with the Conservation Society. It was the first that I had heard of this problem. However, I see no reason to suppose that I would be foolhardy enough to disagree with the recorded judgment of my right hon. and learned Friend the Chancellor of the Exchequer. None the less, having said that I shall give my mind to that point I shall do so.
The hon. Gentleman then raised the wider issue of the independent garage in rural areas. Inasmuch as there is a Government responsibility in this matter, it is more likely to fall within the ambit of the Department of Trade than of the Treasury. The best that I can do is to refer the hon. Gentleman's remarks to my right hon. Friend, so that he may make his assessment.
The hon. Member for Workington (Mr. Campbell-Savours), standing as a self-confessed entrepreneur—a fairly provocative description at this stage of our debates—proceeded to devise suggestions for the Government which I think would be absolute heaven to the entrepreneur—namely, a system of subsidised interest rates on a regional basis. I say in all seriousness to the hon. Gentleman, because we are going to be locked in comradely war——

Mr. Campbell-Savours: Coexistence.

Mr. Biffen: All right, coexistence—over the coming evenings——

Mr. Campbell-Savours: Mornings.

Mr. Biffen: Promises, promises. The position is that in the prosecution of regional policy we have had the payment of grants on physical assets. I note the presence of my hon. Friend the Member for Folkestone and Hythe (Mr. Costain). The Public Accounts Committee can provide no end of evidence of the difficulty of ensuring that those physical assets attracting grant were actually used in the areas that had been designated. How much more difficult it would be if we


designated financial assets. I can see endless scope for the nimble-minded in this whole area. I am not commenting on the theological acceptability of the proposition; I am merely saying, in hard practical terms, that I do not believe that this kind of proposition is a starter.
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The same consideration leads me to be sceptical about the time-honoured Liberal proposal for differential interest rates. At least it can be said that the Liberal proposition was almost born of the pre-1914 days—the land on which we stand God gave to the people. But we have moved on. I see no effective likelihood in the sophisticated society in which we live of having two-tier interest rates or, indeed, an effective tax on bank lending, which was the great offering to our public debate this afternoon by the right hon. Member for Llanelli (Mr. Davies), who asked us to study it with very close care.
The debate has thrown up this itch for mistaken intervention on the part of the Opposition. It is a Lib-Lab coalition in this instance, but it is not dignified by that passing alliance. It takes us again more and more to the broad divide in approaching the problems of business: whether we believe that we can help by constant Government involvement on a discriminatory basis or whether we should proceed on the basis of trying to withdraw Governments successively from their present degree of involvement.
The hon. Member for Cardigan (Mr. Howells), besides referring to two-tier interest rates, suggested that I might like to enliven our proceedings by indicating when the minimum lending rate would fall. I have nothing to add to what I said last night. Indeed, the right hon. Member for Llanelli said that what I said last night moved the market. It is a great temptation to see what goes up come down, and whether one can manipulate two ways, but I shall be immensely responsible. I say that I have nothing to add.
I note that my hon. Friend the Member for Hertfordshire, South-West (Mr. Page) said that he was travelling happily—that was the impression that I got—with regard to the prospect of a fairly early fall in the minimum lending rate. I always have a cheery wave for such a pilgrim, but again I cannot reasonably go beyond what I have already said.
The hon. Member for Norwich, South (Mr. Garrett), coming to the Opposition Dispatch Box, treated the Committee to a litany of gloom that would almost have been worthy of myself. One learns that paste is no substitute for pearls. I felt that, somehow or other, the whole thing was just that much overdone that it had become something of a caricature.
When the hon. Gentleman referred to small businesses as a wasteland, he showed a total misunderstanding of what was happening in the economy. Of course small businesses have their full share of problems. There is not the slightest prospect of sheltering the small business sector of the economy from the general buffets that we shall encounter over the coming 12 months or so. Nobody would be so foolish, so facile or so patronising as to suggest that. But at least we are enabled to believe that there is about the small business sector an innovative characteristic—a reaction, an aptitude, an ability to weather storms a great deal more successfully than do some of the giants. I should think that that is the story of what is currently happening.
In contrast to what was offered by the hon. Member for Norwich, South, I turn to the speech made by my hon. Friend the Member for Bridlington (Mr. Townend). He showed just the kind of robust optimism that is needed to wither the contrived gloom of the Opposition Front Bench. My hon. Friend made a point that will increasingly lie at the heart of the debate. He said that if we have the interests of the small business sector at heart we must secure an early and substantial reform of capital taxation. That will be the real test. What is the degree of bipartisanship on the whole issue of small businesses, whether or not the Opposition will join us in prosecuting the passage of a substantial reform of capital taxation?
The right hon. Member for Llanelli said that we have not done anything yet. That should be written into the record, as should his pledge on a tax on bank lending. It is a clear indication by the Opposition Front Bench that we should get on with the question of reforming capital taxation. In this area I shall also travel happily.
My hon. Friend the Member for Uxbridge said that he believed that the banks wanted to help small firms. That


is true. The whole area of the financing of small companies is one that is engaging the anxieties of the financial community on a scale that has hitherto been unparalleled. It knows perfectly well that small businesses have become politically very topical. I do not blame it on that account. I also believe that it is a matter of good, sound business instinct. The financial community knows that this is an area that will allow the deployment of our asssets to produce a profit and secure livelihood.
My hon. Friend the Member for Southampton, Test (Mr. Hill) enjoined us to realise—I thought splendidly—that a large number of small companies prefer to proceed invisibly. They are not interested in joining trade associations. They are a part of the great unorganised army. That is partly why they are resented by those who have a vested commitment to centralised planning in the economy. The small business sector is full of people who are monumentally and temperamentally unfit to be members of a sector working party, and long may that remain so. They are part of the free enterprise sector of the economy that we need so much.
I turn now to the speech of my hon. Friend the Member for Upminster, who introduced this debate and who speaks with the authority of the office that he holds with the small business committee of the Conservative Party. I thank my hon. Friend for initiating a debate that has ranged widely. The longer it proceeded the more it vindicated the role of small businesses in our economy. My hon. Friend drew upon American experience—which is as good a guide as we have—indicating the importance of small businesses for the whole process of renewal in our economy.
The hon. Member for Norwich, South sits on the Opposition Front Bench, taking a slightly sniffy attitude. I heard all his words and the mild barracking from the Opposition Front Bench throughout the debate. I am not complaining, so the hon. Gentleman must not get too upset.
There is no harm whatever in quoting from the American experience. Of course, our economy does not slavishly follow that of North America, but I believe that the experience there is a good general guide as to the importance of small businesses

in securing the renewal and change that must be essential if our economy is to prosper.
This clause is a modest indication of the Government's commitment to provide a better tax framework for small businesses. I make no great claims, but at least it is better than nothing, and its value is increased when it is taken in conjunction with other tax changes, both in the previous Budget and in this Budget. There is also a commitment to ensure that there are better ways of providing venture capital for the small business sector. On this, we are well advised to await the final outcome and judgment of the Wilson committee. It will be a matter of major continuing debate.
Finally, we have a commitment to keep off the grass, which is not an attitude congenial to our opponents. We believe that the small business community needs significantly less government rather than more regulation. This clause is part of a general approach that is being deployed by this Government in their policy towards small businesses. I recommend it to the Committee and I hope that it will receive its authority.

Question put and agreed to.

Clause 20 ordered to stand part of the Bill.

Clause 23

INDEXATION OF INCOME TAX THRESHOLDS AND ALLOWANCES

Mr. Denzil Davies: I beg to move amendment No. 17, in page 13, line 34, leave out ' Parliament ' and insert ' the House of Commons '.
This amendment relates specifically to the procedure laid down in the clause for the application of an order should the Government wish to resile on the indexation provisions of the clause. I hope that when we reach clause stand part we shall discuss the merits of the clause. This amendment is concerned merely with the procedure under which the clause is to operate. Unless we receive strong assurances from the Government, we shall probably wish to oppose the clause when it is put to the Committee.
The clause seeks to extend the indexation provisions. It is a sort of extension of Rooker-Wise to Lawson—if I may


put it in that way. Clearly the Financial Secretary has derived great pleasure from the clause. Under the original Rooker-Wise amendments to the ordinary personal allowances, if I may so describe them, there was a procedure whereby the Government, by means of an order, could resile from or not follow through the indexation of allowances. They are incorporated in the procedure in this clause. This amendment seeks to put pressure upon the Government not to provide that that order can be brought forward in the House of Lords. Subsection (4) states:
 Unless Parliament otherwise determines ".
The order under this clause would prevent indexation on the basis of an increase in the retail price index. According to the arguments that this Government put forward when they were in opposition, if there is no indexation link to the retail price index or a link to inflation, that is, in effect, an increase in taxation. We heard cynical and perhaps hypocritical speeches from Conservative Members in opposition about the need for truth in taxation. They pressed upon us the point that if we did not index allowances—whether personal allowances or the higher rate band with which we are really concerned—that was, in effect, an increase in taxation. To some extent, it was.
The Government are now saying that to allow that increase and to negate the provisions of the clause there should be an order in the House of Lords, I do not understand that. I understood that the Upper House—it is clearly written into statute—does not have anything to do with taxation. I should like the Financial Secretary, who is clearly in favour of indexation, to tell us why the Government may move an order in the House of Lords. It may be theoretical, but for the first time we have a Treasury Minister sitting in the House of Lords.
Why is it necessary to include the word " Parliament " in the clause? The words " the House of Commons" are more appropriate. The House of Commons is the arbiter of taxation, and the House of Commons imposes taxation, and should relieve taxation if necessary. This order is directly relevant to the levels of taxation when they are related to the levels of inflation. I hope that when we debate the clause we shall debate

it on the basis of indexation. I hope that the Financial Secretary will say why we are allowing the House of Lords the privilege of the power to bring forward this order.

Mr. Lawson: The right hon. Member for Llanelli (Mr. Davies) has not been as careful as he usually is, as a lawyer by profession—not to mention a former Treasury Minister—in reading the clause. There is no question of any order in the House of Lords for the simple reason that there is no question in the clause of any order-making power. What the right hon Gentleman is getting confused with is the procedure which has existed since section 22 of the Finance Act 1977, when, as a result of my amendment to the so-called Rooker-Wise amendment, it was laid down, to show that there was no automaticity of the indexation, that an order could be introduced which would make the allowances less than they would otherwise be.
Under the new procedure there is no such order-making power. The making of the allowances, personal allowances or whatever they are, less than would be indicated by indexation would be done in the Finance Bill itself. Therefore, since the Finance Bill has to be approved by Parliament, that is why the words are as they are in the clause. I hope that the right hon. Gentleman will be satisfied with that explanation.

Mr. Denzil Davies: I am grateful to the Financial Secretary. I entirely accept what he says. Clearly, if this is to be done by statute, as he says, I accept that the word has to be " Parliament ". If there were a specific order, we would expect the term to be " the House of Commons ".
This shows the virtue of what was said by my hon. Friend the Member for Gateshead, West (Mr. Horam) in Standing Committee. He said that there should be available to this Committee notes on clauses explaining fully the purpose of this clause. This point was not made clear in the puny little note from the Treasury that we got in the Vote Office. It is expecting a lot of the Opposition to ask us to pick up all these particular points.
It is only right that when we see the word " Parliament " in a taxation


measure we should question it. We have had experience of this in Standing Committee, where we were faced with an amendment whereby the House of Lords was to be given powers in relation to the Road Traffic Acts and the road fund licence—powers in relation to taxation. It is only right that we in this House should jealously guard our powers over taxation. When we see the word " Parliament " in a clause of the Finance Bill, we must be very careful.
However, I am satisfied and I accept entirely the explanation. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Denzil Davies: Perhaps the Financial Secretary will tell me again whether I am wrong, in which case I shall be prepared to admit it, but to me the clause looks like a major extension of the——

Mr. J, W. Rooker: It is.

Mr. Davies: It is. My hon. Friend is an expert in these matters. I believe that he was the man who moved the original indexation amendment to the personal allowances. I have some quotations with me to show that.
The clause is a major extension of the indexation provisions, which were contained in what was called the Rooker-Wise amendment—or the Rooker-Wise-Lawson amendment, if the Financial Secretary wishes to add his name to it, as I am sure he does. Therefore, we have here an attempt by the Government to extend indexation from the ordinary personal allowances to the higher rate bands or thresholds, to people who earn £11,250 a year and upwards, and to the investment income surcharge, as I understand it, under subsection (2)(b). So we have a major extension of indexation to two groups who pay tax at these higher rates—the old surtax rate, now the higher rate, and the investment income surcharge.
It seems that these groups are to be given priority in protection from the effects of inflation. They are to be indexed and protected. No matter how

much their salaries increase, the tax advantage will follow, because the tax advantage will be increased more or less in line with the increase in their salaries. The Government will be doing this to those groups who, I should have thought, by and large, are quite capable of looking after themselves and who have benefited enormously—they are the only groups that have benefited; as far as I can see, no one else has—from the last two Finance Acts. If there is to be hyper-inflation, as there will be under the present Government for some time, the surtax payers will be protected from that, come what may, under a Tory Government.
The Government would argue—I suppose that this is the kind of argument that we shall have from the Financial Secretary—that this is an extension of the Rooker-Wise-Lawson amendment and that, as a result, it is nothing to get too concerned about. I do not wish, especially as my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) is present, to go back over those indexation debates. My views on indexation are on record. They may be wrong; they may be right. Those who attend or read our debates will know my views on the subject.
I believe that indexation is generally a bad thing, although I accept entirely that there are certain groups who must be protected from the ravages of inflation, and they are the people who cannot protect themselves and who are in the worst position in society. But basically my view is that indexation is not a good thing. It helps to build inflation into the system and, as such, as a general principle, I would object to indexation. I do not want to pursue that debate this evening. We have had that debate on a number of occasions.
I know that the Financial Secretary takes a different view. I think that it could be said of the hon. Gentleman that his view is " If it moves, index it ". He is the great indexer. He shakes his head now, but in his time he has been—and in this clause with which he is personally concerned on the Front Bench—the great indexer. He is the man who believes, with Sam Brittan, that one indexes everything and then one solves the problems of inflation.
Of course, one cannot index everything. That is the problem. One can index only some things. No Government will index everything. That is where the difficulty comes with inflation. However, under this clause indexation is given to some in our society—the managers, lawyers and accountants, the opinion formers—who will then have no incentive. Why should they worry about inflation? They can have their 20 per cent. wage increases. They can have a 20 per cent. increase in their fees if they are self-employed lawyers or accountants. None of that will be eroded by inflation, because the Financial Secretary has introduced indexation for them and everything is fine and rosy in the garden and they still get the full benefit. So why should they worry about inflation?
The poor may suffer from inflation. The unemployed may be de-indexed, as has been done under the present Government with unemployment benefits. But that does not matter. The company director, the lawyer, the accountant and the stockbroker are all right. They can raise their fees and get their increases. They can get their wage increases if they work in companies, and if they are self-employed they can get their increases merely by raising their fees to take account of inflation. There is no deterrent in the tax system. The Financial Secretary says " We shall index your allowances and you will not come back into the basic rate of income tax. Do not worry. You will not fall down into the next band. You will stay in the band in which you are ". That is the real mischief in the clause, and that is why we oppose it.
Leaving aside the general question of indexation, I believe that it is a bad thing for another reason, which I have touched upon, namely, that since everyone cannot be protected there is the question of the pressure group which is the strongest and which has the most influence on the Government. If one has influence on the Government and the Treasury, if one is a higher rate taxpayer, one can get one's income indexed. But people who are unemployed, or disabled, or on social security, under the present Government, are not strong enough as a pressure group.
That is the iniquity of indexation. It is only those who can bring pressure and influence to bear on the Government, whatever party is in power, who get the indexation. Under the present Government we have seen that it is the better-off who get the benefits of indexation and it is the poor and unemployed who are deprived of the benefits of indexation. That is another reason why we oppose the clause.
The Financial Secretary will use those various debating points against me. His general views on indexation are strange for a Financial Secretary in a Conservative Government. There are quite a few Conservative Members on the Government Benches. I should have expected some of them not to believe in indexation. As the Conservative Party is in Government, Conservative Members must support the clause and may have changed their views. I would have expected some Conservative Members to believe in sound money. The Conservative Party used to believe in that. However, that was a long time ago, when the Conservative Party was in Opposition. There is no sound money any more, with inflation at 22 or 23 per cent. However, rates are indexed for the better-off.
No doubt the Financial Secretary will say that this provision is an extension of the Rooker-Wise amendment. My hon. Friend the Member for Perry Barr played a major part in that amendment. He will no doubt argue in favour of his amendment. However, this provision is more than an extension. From reading the reports of the debates on the so-called Rooker-Wise amendment in that famous Committee upstairs, it is clear that the amendment was introduced to protect the weakest in society and those within the poverty or surtax trap. The Financial Secretary did not like the words " surtax trap." The amendment had something to do with the " why work? " syndrome; the gap between those who do not have a job and those who work and are taxed because we could not increase the allowances.
I am sure that the Financial Secretary will be interested to hear some quotations from that debate. No doubt he has got the quotations in his brief. The Financial


Secretary played a leading part in those debates along with my hon. Friend the Member for Perry Barr. The Financial Secretary said:
 Nevertheless, it means that an increasing number of people find themselves better off not working than working—or very little better off.
That is the " why work? " syndrome. It was his rationale for introducing the amendment. He continued:
 the average man gets 80 per cent. of what he would get working if he is not working. That is a very substantial amount.
The issue arose because unemployment benefit was not taxed. It was indexed under the Labour Government. Our record was fairly good, but the problem may have arisen because we were unable to index personal allowances entirely to the cost of living. As a result, the gap narrowed between the net income of a man who was unemployed and the net income of a man who was employed. That was the Financial Secretary's argument. That is why he moved the amendment. He then said:
 Therefore, even for the average man the difference between working and not working is rather marginal. Of course, for a number of people who are below the average there is no encouragemnt to work at all. I believe that this is economically, socially and morally destructive."—[Official Report, Standing Committee D, 14 June 1977: c. 449–50.]
That was the basis on which the Financial Secretary moved the amendment and argued for an indexation provision.
At that time Mrs. Audrey Wise was a Member of Parliament. She made the same point. She said:
 What is the logic of a taxation system whereby people are taxed on exactly the amount decreed to be the official poverty line? 
A credible argument was put forward. Why should people work when they are taxed on the poverty line? That argument is related to the fact that personal allowances were not completely indexed to the cost of living. Mrs. Wise continued:
 So people on low incomes who were not embroiled in the tax system now are embroiled in it and the poor, in fact, are paying the cost of their own Welfare State."—[Official Report, Standing Committee D, 14 June 1977; c. 456–57.]
My hon. Friend the Member for Perry Barr made a speech in a similar vein.
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I disagree with the general principle of indexation. However, I understand the desire to index personal allowances to prevent such a situation. The amendment sought to protect the least well-off. If the Financial Secretary wishes to argue glibly that he is extending that amendment to the man earning £10,000, £15,000 or £20,000 a year, he will be making a cheap debating point, which will not impress the Committee. I hope that we shall not hear that argument. I hope that the hon. Gentleman will base his argument on the merits of the case and not pretend that the provision is an extension of an amendment that was designed to protect the weakest and poorest people from the effects of inflation.
The Financial Secretary may say that an order can negative indexation. However, he has told me that I am wrong. Apparently it must be done through a Finance Bill. That is a technical point. The hon. Gentleman may say that if the Government do not wish to go through with indexation they can ask the House for its authority not to do so. He is in agreement with that proposition. Treasury Ministers may come to the Dispatch Box and say that they will deny indexation to a man on £10,000 or £11,000 a year. Those people are supporters of the Conservative Party. Treasury Ministers may accept that they will have to put up the cost of living by 23 per cent., or perhaps 30 per cent., next year. They may say that they will not give their natural supporters—those entrepreneurs who make the economy tick and who rejuvenate the economy-indexation. They may say that they will move an order or a clause in the Finance Bill. I must tell the Financial Secretary that they will not do that. It is a figment of his imagination.
I cannot believe that a Conservative Financial Secretary will come to the Dispatch Box next year or the year after and say " Sorry boys, you may want £15,000 a year, but we shall not give you the benefit of indexation." The Government have not said that they will not index personal allowances this year in accordance with the Rooker-Wise amendment. They have said that they will abolish the reduced rate band. They seek to pretend that they have indexed the personal allowances by 17 or 18 per cent. They have got rid of the reduced rate band.


I accept that there are arguments both for and against the reduced rate band. The Financial Secretary should not mutter from a sedentary position.

Mr. Lawson: Who is talking?

Mr. Davies: The arguments are fairly balanced. The Government have avoided the need to put forward an order or clause not to index personal allowances. They will not be able to do that next year. However, they will do something else. They will cut public expenditure a little more. I can hear the Financial Secretary saying " Of course " from a sedentary position. Of course the Government will do that.

Mr. John Bruce-Gardyne: I hope so.

Mr. Davies: The pressure groups are already building up. No doubt the hon. Member will go to see his hon. Friend the Financial Secretary if he sees any danger of indexation being abrogated by a clause. As we cannot have any other devices, we shall have cuts in public expenditure. It will cost a lot of money next year if we index higher allowances at a time of hyper-inflation.
The Financial Secretary will have to look around for money. He may cut unemployment benefit a little more. He may reduce the indexation on unemployment benefit from 12 per cent. to 10 per cent. He may reduce capital spending in the National Health Service. The Financial Secretary and the Chancellor of the Exchequer can choose from a range of options. Next year we shall see full indexation of the higher rate bands. That will be paid for mainly by those who cannot afford to do so. It will be paid for by reduced public expenditure. Those who will benefit from the clause will not suffer. They never suffer under a Tory Government. Treasury Ministers would not dare to de-index personal allowances. Pensioners, the unemployed and the disabled may suffer, but not those who stand to benefit from the clause. That is why we oppose it. Indexation is a slippery road. The hon. Member for Knutsford (Mr. Bruce-Gardyne) believes in it.

Mr. Bruce-Gardyne: No, I do not.

Mr. Davies: I thought that he believed in it. I thought that I heard him say from a sedentary position that the Financial

Secretary should continue indexation next year.

Mr. Bruce-Gardyne: The right hon. Gentleman is under a misapprehension. I was referring to his immediately previous comment—the suggestion that there would be a need for further economies in public expenditure.

Mr. Davies: Yes, but that was related to my comment that the Financial Secretary would not have enough money to index without cutting public expenditure. I am glad to know that the hon. Member for Knutsford does not support the clause. No doubt he will support the Opposition when we vote against it. It is gratitfying to know that at least some Tories believe in the principle of sound money and do not believe in the drug or palliative of another shot of indexation every time there is an increase in inflation. Those who benefit from that approach are at the upper end of the scale. The poor do not enjoy the benefit.
My personal view is that indexation is bad. I understand that others do not accept that view. However, why should we give indexation to the better-off when inflation is raging at over 20 per cent.? The better-off do not need this form of indexation. The Government propose to take away from the poorer groups in our society—especially from the army of unemployed that has been created in a large part by the Government—to give to those who do not need it.
The clause is not an extension of the Rooker-Wise amendment, which was designed to protect the worst-off in the community. For the reasons that I have outlined, we shall oppose the clause unless we receive convincing answers from the Financial Secretary.

Mr. Bruce-Gardyne: The right hon. Member for Llanelli, (Mr. Davies) reminded me of the sort of chairman who introduces a visiting speaker and says " Our speaker today needs no introduction " and proceeds with an introduction that lasts half an hour. The right hon. Gentleman said that he did not intend to go back over the general arguments on the merits or demerits of indexing, but he made a good attempt at doing precisely that. I make no apology for following briefly down that path. I did not have the privilege of serving in the previous Parliament and of participating in the


arguments that proceeded on what has gone down in history as the Rooker-Wise-Lawson amendment.
I confess that I broadly share the right hon. Gentleman's distaste for the concept of indexation. Some of those for whose opinions I have the greatest possible respect—the right hon. Gentleman referred to Sam Brittan, and I think that my hon. Friend the Financial Secretary is identified with that school of thought—hold that indexation is a wise and sensible method of rendering a high level of inflation tolerable. On the whole, I object to it precisely for that reason. The theme seems to be that we should lie down and enjoy it.
Inflation is the greatest enemy of our society. We should not willingly take measures that are designed to anaesthetise our society against it. In some respects, great crimes have been committed in the name of indexation. For instance, I learnt today that hundreds of employees of the industrial training boards are apparently on index-linked salaries as well as being on index-linked pensions. We have seen a gradual extension of the principle in a manner that gives cause for genuine concern.
I admit that I did not find it quite as easy as the right hon. Gentleman appeared to to reconcile past support for the Rooker-Wise amendment with opposition to the clause. As the right hon. Gentleman clearly recognised himself, the two are logically interdependent. The distinction that he attempted to make was one without a difference.
The right hon. Gentleman said that if the clause is approved as it stands the higher rate taxpayer could have his income indexed. That is rubbish. We are not talking about the indexation of incomes. The right hon. Gentleman shakes his head, but that was precisely the phrase that he used. I took a note of it. If he checks the record tomorrow, he will find that that is precisely what he said.

Mr. Denzil Davies: The hon. Gentleman knows exactly what I meant. I was referring to tax thresholds and tax allowances. The indexation of those elements helps to increase the income of the higher rate taxpayer.

Mr. Bruce-Gardyne: I listened carefully to what the right hon. Gentleman

said. It was not a slip of the tongue. The emphasis and the gravamen of that part of his speech was that there is a body of high income earners who somehow will be enabled to secure indefinite security against the ravages of inflation. That is a disputable proposition in itself. There are many senior managers in many parts of manufacturing industry who would be only too delighted to receive increments this year that could anything like compensate them for the implications of inflation. That part of the right hon. Gentleman's argument is nonsense. The purpose of the clause is the indexation of taxation and not the indexation of incomes.
For the reasons that I have outlined, if that were the sole content of the clause I should have considerable reservations about supporting it. However, it contains a crucial element which the right hon. Gentleman more or less ignored. Subsection (4) states:
 If the retail prices index for the month of December preceding a year of assessment is higher than it was for the previous December, then, unless Parliament otherwise determines, subsection (1) of the said section 32 shall apply ".
That, to my mind, is the crucial distinction.
This is not a matter of semantics. The justification for the Rooker-Wise amendment was not the argument that the right hon. Gentleman advanced. I know what my hon. Friend the Financial Secretary said on this issue and in general I do not agree with his contentions on it. The purpose of the amendment was to deal with the so-called poverty gap. The only serious justification for the Rooker-Wise amendment, as for the clause, is that it was designed to introduce honesty into taxation.
If the Chancellor wishes not to adjust allowances and tax rate bands in line with inflation, he will have to come before the House to explain what he is doing. The serious defence for the Lawson-Rooker-Wise amendment, as for the clause, is that we have for too long had appalling headlines in the press about the Chancellor giving away £3,000 million when in reality he has done no such thing. In fact, he has merely been compensating for the ravages of inflation.
The consequence of the Rooker-Wise amendment, and similarly the consequence of the clause, was to ensure that


the House of Commons knew what it was doing, knew what the Chancellor was doing, and was not bamboozled by a claim of vast generosity that merely reflected the reimbursements of the ravages of inflation. It is only on those grounds that I find it reasonable to support the clause.
The time is fast approaching, if it has not already come, for us to look again at the gamut of indexation. It is a method of constantly accelerating the ratchet of inflation as it spreads in wider and wider circles.
I understand that the clause is to ensure that Parliament knows what it is doing, and that if the Chancellor seeks to compensate on the higher rate band, for the effects of inflation as under Rooker-Wise with regard to allowances, he will not be in a position to claim that he is performing a wondrous act of generosity to benefit the taxpayer. On those grounds only, I am prepared to support the clause.

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Mr. Rooker: I have a vested interest in opposing clause 23. I do not believe that the hon. Member for Knutsford (Mr. Bruce-Gardyne) was in the House in 1977. He may have read our Standing Committee debates on 14 June 1977. If he has not, he must take it from me that it was not the central part of our case that the Rooker-Wise amendment should be made for the sake of truth in taxation. That was a subsidiary issue.

Mr. Bruce-Gardyne: I understood that the amendment introduced in Committee at that time did not require the Chancellor, if he was not complying with the provisions in the amendment, to report the fact to the House. Therefore, the hon. Gentleman's amendment had nothing to do with truth in taxation. It was the amendment applied to that amendment by my hon. Friend the Financial Secretary that had that effect.

Mr. Rooker: That is correct. Our amendment did not have an escape clause for a Government. The allowances had to be raised. Had our amendment stood without the other amendment attached to it providing that gateway for a Government, the position would have been the same as under this Bill. We have to have a Finance Bill each year. A Government

would have been able, in the Finance Bill, to amend that amendment and not put up the allowances. A debate would have been necessary if a Government wanted to depart from our amendment. The Opposition would have ensured that. However, that was not written into our original amendment.
Our main case was simple and narrow. There were two opportunities to discuss the matter in that week, both in Standing Committee and in a day-long debate on poverty on Friday, initiated by the hon. Member for Norfolk, North (Mr. Howell). As Back Benchers, and within the limitations of the rules of the House, we aimed to do all that we could to protect the low-paid and those on average earnings. We did not put the case for general indexation, and I should not do so today. My right hon. Friend the Member for Llanelli (Mr. Davies) and I are not that far apart, but in 1977 Mrs. Wise and I felt forced to make a decision. We were put on the Committee to argue the case for the low-paid. There was little that we could do. As I said last night, we could not raise other people's taxation to help the low paid. We managed to increase personal allowances on another amendment. As a fail-safe device, we then tried to make sure that the Government would not increase the burden of tax on the low paid in succeeding years.
I read the debates yesterday on the train, which was something of a chore. We stated that we were out to increase the Government's popularity. I can speak only for 50 per cent. of the electorate in my constituency—and the matter was raised with me during the last election at 6 am in a bus queue—but the workers understood what we had done and why, even if they did not understand the technical procedures of the House that forced us to take such a big step. I have the press cuttings from that week. According to the Sunday Mirror, we were saboteurs for taking action to protect the low paid.
We never denied, as was pointed out by my hon. Friends a few days later, that the effect of the Rooker-Wise amendment was to put more money in the pockets of those paying tax at higher rates. Lifting the basic personal allowance automatically raises the level at which the higher tax bands come into operation. However, the tax cut—and that is not the


right expression—benefited the family income of the low-paid more than the rich. In the end we were able to get the point across to my right hon. Friends. They accepted the amendment, with all its faults.

The First Deputy Chairman (Mr. Bryant Codman Irvine): The hon. Gentleman has got his point across to the Committee once again. Perhaps he will now address himself to the clause.

Mr. Rooker: Clause 23 does not make sense if the original amendment remains on the statute book. However, it does not. In schedule 18 there is a line that repeals the words in the 1977 Act resulting from the Rooker-Wise amendment. I prefer my name to be totally dissociated from what this Tory Government are now doing. This clause will benefit only a married man who earns over £265 a week. The workers on average earnings and the low-paid would have benefited in any case under our original amendment.
As a result of this clause and the subsidiary effect of repealing our original amendment, those in higher tax groups will benefit twice over. That is my overwhelming objection. My hon. Friend the Member for Thurrock (Dr. McDonald) will give us more details, if she catches your eye, Mr. Godman Irvine. However, the people who will benefit under the clause are those with a taxable income of over £11,250, which means a married man earning in excess of £13,400, taking into account personal allowances. They will benefit in any case from indexation of the basic personal allowance. By passing this clause and indexing the gap between the basic personal allowance and the higher rate bands, those people will have a double benefit. The House should not pass such a measure in silence and without making clear that the Government are benefiting only married men earning more than £265 a week. I do not want my name attached to that. Nor, I suspect, does Audrey Wise.
The Government are in the process of indexing the well-off while de-indexing the poor and needy. In the Social Security (No. 2) Bill they have de-indexed invalidity, unemployment and industrial injury benefits. They will not

rise in line with inflation, and those with an annual income below the tax threshold will have their benefit cut even though their total income is less than the personal allowances set out in the Bill. If the benefit were taxed, they would pay no tax on it.
While the Government are doing that, they have the brass face to push through clause 23. It is not good enough. When the point gets across to those outside—as we shall ensure that it does—Conservative Members in marginal seats will reap the result in the next election.
The Minister may say that the Government's proposal represents fairness between taxpayers and that since the 95 or 97 per cent. of basic rate payers benefit from what was the Rooker-Wise amendment, the other 3 per cent. should benefit similarly. I do not accept that. Those paying higher rates are already earning enough. Most do not pay the top rates, which have already been reduced by the Government from 83 to 60 per cent. They have also concertinaed the higher rate bands.
We should not accept the Minister's arguments. We know what the Financial Secretary will say. He has only one speech on this subject. I had to read it recently and I shall have to listen to it again shortly. When it had the chance in Opposition, the Tory Party did not table such an amendment to the 1977 Finance Bill. Conservatives knew that they would not have got my vote. There was no warning that it was to be done in this Bill. An obscure reference on page 9 of the Red Book deals with the extension of indexation provisions and " no cost " is shown against forgone revenue for 1980–81. The Government do not know what the cost will be. More important, they are frightened to give a forecast of the rate of inflation. They are scared stiff of putting in a cost on the basis of current inflation rates. By the end of the year they will reap the whirlwind when we see what higher rate taxpayers will get next year as a result of the clause.
I do not want to carp about the form of words in the clause just because the words that I helped to draft no longer appear. However, the wording is imprecise and the appropriate words are in the wrong place. They hang in suspension, not attached to any part of the clause,


because of some faulty draftmanship. The parliamentary draftsmen have used about 1,000 words to do what we did in 50. Their productivity is obviously not good.
I was surprised to see the retail price index mentioned in the clause. I thought that we were to be fobbed off with the taxes and prices index. That was supposed to be the real rate of inflation. Of course, that has got worse. It was all right for only a few months in 1979, when the Government wanted to sell a false prospectus caused by the VAT changes. We have not heard anything about that index since then. If it were any good, it would be in the Bill. The Government know that it is a sham. The only Minister who ever pushed the index was the Financial Secretary to the Treasury, who was accused at the time of peddling a false prospectus.

Mr. Lawson: We are always open to suggestions. Is the hon. Gentleman suggesting that the clause would be more acceptable to him if the taxes and prices index were included instead of the RPI?

Mr. Rooker: Of course not. That is the whole point. I was surprised at the inclusion of the RPI, even though to the public, that index, with all its faults, warts and imprecisions, is the cost of living index. We may argue about how it is made up, but the public knew that it was being sold a pup with the taxes and prices index. It was a con trick, following the increase in VAT last year bumping up the RPI. The message has obviously got home. A Cabinet Committee must have approved clause 23 and it knew that it could not sell it with the taxes and prices index included. It is probably in the Government's interest to use the RPI.
I am not here to barter. There were no deals on the original amendment and there will be none now. I want to distance myself from the clause as much as possible. We have made the point. It is known outside that the original help for the low-paid was given because Labour Back Benchers convinced their own Government that a change was right. There was some credit for the Labour Party in that change, but I want nothing to do with the new change.
The Government's proposal is like the change that we debated last night on the abolition of the lower rate tax bands. Such amendments are shovelled on to the Government by disreputable fringe banks, such as Rossminster, which operate on the fringe of the law with the sole job of assisting the high-paid.

Mr. Nick Budgen: The most important point that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) indicated was the ratchet effect of indexation. In general, he does not approve of indexation, but in 1977 he jumped on the bandwagon—I do not intend to be offensive—in order to achieve what he would describe as greater justice for the poorer sections of the community.
In a sense, the hon. Gentleman's position is similar to that of my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne), who says that he does not like indexation but will nevertheless go along with this example. The danger of going along with indexation is that it takes us yet a further step.
The hon. Member for Perry Barr said that he would go along with indexation as long as it benefited the poorest members of the community. However, my hon. Friend the Financial Secretary to the Treasury, who is a supporter of indexation on a much wider front, says that if we are to have indexation of personal allowances we must have a balancing indexation of the higher rate bands—a necessary symmetry of indexation in this area.
The hon. Member for Perry Barr must understand that if we accept his argumen there may be a logical case for indexing, for example, capital gains tax. My hon. Friend the Member for Knutsford must accept that the further we go along the path of indexation, the more we build it into our system.
I agree with the general observations of my hon. Friend the Member for Knutsford when he says that he fears indexation because it takes away the pain of inflation. I do not think that people react to social conditions out of altruistic ideas about what is good for society. On the whole, they react to social conditions because of the way those conditions affect them.
The idea of indexing the higher rate bands of income tax is extremely dangerous. There may have been an argument for what the Rooker-Wise amendment did for the lowest-paid in our society, although, I would say it was, most of all, the Lawson amendment. It is possible to argue that inflation hits the poorest hardest and that the poorest have the least means of avoiding the effects of inflation. That argument cannot be extended to the rich.
One of the constraints felt by the Government in imposing a gradual monetarist policy is the fact that the very rich and even the medium-rich can mitigate or even take advantage of the effects of inflation. If one already has substantial capital assets, it is much easier to make substantial borrowings that are still at negative interest rates. It is no good pretending that in a period of inflation everyone is a loser. Many of those who, by virtue of this clause, would be effectively indexed in their income tax are people who can avoid the effects of inflation. I say to my hon. Friend the Member for Knutsford: " Beware of this." Once one steps on this ladder, it is difficult to get off.
I understand the general arguments that are put forward by my hon. Friend the Financial Secretary. I recall them well from 1977. That was the first and last time that I was allowed to sit on a Standing Committee of the Finance Bill. I am a member of it this year and I suppose that I shall not be again in future. I had the misfortune in 1977 to disagree with my hon. Friends on this clause. My hon. Friend, the Member for Blaby, as he then was, by some splendid footwork, got me paired at one stage. That resulted in the passing of the Lawson amendment, as I think it should be called. My hon. Friend was, at that time, an advocate of general indexation.
My hon. Friend the Member for Knutsford should understand the way along which our hon. Friend the Financial Secretary wants to take the economy of this country. He wanted, as he put it at the time, what he called honesty in taxation in all taxes. We were to have indexation of capital gains taxes. We were to have indexation of capital transfer tax. There was to be generalised indexation of all

taxation. We must understand what the consequences would be.

Mr. Bruce-Gardyne: The conclusions that my hon. Friend draws are his affair. I submit that we are not arguing about the philosophical approaches of my hon. Friend the Financial Secretary but about clause 23. The crucial element in that clause, to my mind, is the requirement imposed upon the Chancellor that if he does not, in any year, decide to accommodate the bands that we are discussing to the effects of inflation, he shall come before Parliament and explain what he is doing. It is that proposition, and not the generalised proposition that my hon. Friend is arguing, that I am prepared to support.

Mr. Budgen: I listened to my hon. Friend's distinction based upon subsection (4). I do not think that it is a good distinction and a proper argument. What is being done is to give the richest members of society the general impression that their tax rates will change according to inflation every year. My hon. Friend is right in saying that subsection (4) gives Parliament a let-out. But the assumption, if I may express it in legal terms, is that the rates will be indexed. The rich are, of course, subject to changes in the law like everyone else but they will, nevertheless, be able to say to themselves that in general they can expect these higher tax rate bands to be indexed. That is an extremely dangerous thing for any section of the community to be able to say to itself. It is a particularly dangerous thing for the richest and most influential sections of the community to be able to say.
This is particularly unfortunate at a time when the Government are striving to de-index many areas of the benefits system. Hon. Members have spoken about some areas of de-indexation but I remind my hon. Friend the Member for Knutsford that he and I, on many occasions, have had something to say about the indexation of pensions in the public sector. What is the difference, in principle, between this sort of indexation and the indexation of public sector pensions to which we, in my opinion, rightly take exception? I hope that my hon. Friend, at some stage, perhaps privately, will explain what is the distinction in principle.
I believe that the cure for inflation is extremely painful. I hope that it will be carried out quickly. I am, on this subject, a Hayekian and not a Friedmanite. I believe that the people of this country do not respond to abstract principles. They respond to economic situations when they pinch upon them. The more that we work indexation in to the system the more difficult it becomes to encourage popular support against what I regard as the greatest social evil. There may have been a case in the past for easing the shoe where it pinched for the weakest sections of the community. I find it difficult to apply indexation where it pinches upon the richest sections.

Dr. Oonagh McDonald: I have listened with interest to the debate so far, and particularly to the remarks of the hon. Member for Knutsford (Mr. Bruce-Gardyne), who said that he was prepared to go along with indexation, and in particular the indexing of tax thresholds for the higher rate bands, because he thought that it would prevent the Chancellor from pretending to be particularly generous to certain groups of taxpayers. He thought that it would lead to honesty in taxation, just as indexing the tax thresholds for the basic rate taxpayers had.
It would have been much more honest and truthful if the Chancellor had presented the indexing of the higher rate band and the raising of the tax thresholds in this Budget as an act of generosity to higher-rate taxpayers, because that is what it is. It turns out to be that when one assesses the impact of the Budget, perhaps taking into account last June's Budget as well, on families of various income levels. One can then see that it is particularly generous to those who would otherwise be liable to pay tax at the higher rate, and that to continue to index it in future will be even more generous to those same taxpayers.
8.30 pm
Let us consider the overall effect of the Budget. The basic changes that have already been considered—the increase in personal allowances, the abolition of the reduced rate band and the increase in the thresholds and bands of the higher rate taxes—have had a different impact on various families. The net effect of the tax changes has been to reduce the

tax bill of a married couple on £40 a week by 55p a week. Most couples have had a tax reduction of £1·18 a week. Those on £250 a week have had their income tax bill reduced by £3·46 a week. Those on £500 a week will pay £10·22 less in tax and those on £600 a week £13·18 less. That is simply taking account of the incresase in personal allowances and the higher rate band adjustments.
Most families, on the basis of those tax changes, will face increased taxes and will be worse off as a result of the Budget. For most families the reduction in income tax will be inadequate to offset the increases in the other taxes that were made at the same time. If we include national insurance contributions, excise duties and the taxes on tobacco and petrol, we find that only those with weekly incomes above £300 will have enjoyed an income tax cut sufficient to offset the increase in other taxes.
By the autumn families will receive a child benefit increase of 75p per child, but that is not enough to maintain the value of the benefit against inflation. The other increased charges that families will have to bear—prescription charges, housing costs, fuel bills and dearer school meals—mean that only those with a weekly income of £500 and above will be better off by the end of the year. Therefore, when one sets the total impact of Government policies and the Budget changes against the incomes of the various families considered in clause 23, one sees that to alter the higher rate bands in this way and to promise to index them in the future is quite simply an act of generosity to those who do not need it.
The Budget has virtually abolished the higher-rate taxes. The Treasury estimates that only 730,000 people will now pay tax at any of the higher rates, whether on earned or unearned income. That number will constitute about 2 per cent. of all taxpayers. That means that 98 per cent. of taxpayers simply will not benefit from the changes in the clause now or in the future.
Let us further consider how few people will benefit from the clause. The Treasury estimates that 3,020,000 people will earn more than £10,000 a year in the current financial year. Admittedly, not all of them would be eligible to pay tax at the higher rate anyway. A single person, assuming only basic allowances, would not be


eligible to pay the higher rate of tax until he or she earned about £11,000 a year. A married man would have to earn about £13,500 a year before he was liable to tax at the higher-rate band. Even if we reduced that number of 3 million-odd considerably, to find that only 730,000 people will pay a higher rate of tax this year is to see how the Chancellor has benefited a tiny number of people at a fairly high cost. He estimated that cost as £100 million in his Budget Statement.
The changes are an act of generosity concentrated on a tiny number of those who earn enough to pay taxation. For that reason there is no justification, either, for the present changes in the higher-rate band. The Chancellor said that he had limited resources available and that there must be cuts of all kinds in public spending. There were to be increased prescription charges, and the charge for school meals would increase considerably.
The Chancellor said that he found that he could no longer afford to index unemployment benefit, invalidity benefit and social security benefits of all kinds, yet he can squander £100 million on a small number of people who already earn at least three times the average income for males. A small proportion of the population now receive enormous benefit by the Chancellor's act of generosity, and that act of generosity is to continue in the financial years ahead by an unjustified and gratuitous indexing of that benefit.
At the same time the Chancellor, by way of changes in family income supplement during the current financial year, has increased the number of families caught in the poverty trap. He has increased the numbers for whom the marginal rate of taxation would have been, in some cases, much higher than any of those marginal rates of taxation liable to be faced by a higher-rate taxpayer. The marginal rate of taxation for many low-income families could be over 50 per cent. and there are families who could face rates of 100 per cent. or even more.
Therefore, at the cost of £100 million, the Chancellor is benefiting a tiny number of families. Meanwhile, the numbers caught in the poverty trap will increase and will probably constitute about 90,000 families this year. That is an increase of 5 per cent. on last year and it has been brought about by a Government

and a Chancellor who claim that they are concerned with incentives to work and who say that they are worried about the disincentives of high social security and unemployment benefits. They are so concerned that they have introduced the first steps in the current social security legislation towards taxing such benefits.
The resources gained by the Government as a result of the changes are wasted upon those who cannot and do not need them. It is a totally unjustified squandering of the nation's wealth on a tiny number of people whose incomes are already above the majority of incomes. There can be no justification for the changes introduced for this year. Still less is there justification for their continuing in the years to come. The top earners in the population have received gratuitous handouts while the Government have increased the burden of poverty for very many families.

Mr. Lawson: All indexation debates——and we have had a number of them in the past few years—have a certain similarity. That has to be admitted. Even the cast has a remarkable similarity. I warmly welcome one newcomer to the debate—my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne).
Before I reply to the points raised in the debate, it might be helpful to the Committee if I were to state clearly what the clause does. It provides that for each tax year the single and married allowances, the additional personal allowance, the age allowances, the age allowance income limit, the higher rate thresholds and the investment income surcharge threshold should, unless Parliament decides otherwise, be increased by the same percentage as the increase in the RPI over the year ending in the previous December.
Thus, for the new tax year 1981–82—the first year in which the new indexation provision will operate—the allowances and thresholds, unless Parliament decides otherwise, will be increased in line with the rise in the RPI between December 1979 and December 1980. Each year's indexation adjustment will start from the allowances and thresholds in force for the previous year, whether they were arrived at by the indexation formula or by a discretionary change in the annual Finance Act.
The indexation formula provides for the figures to be rounded up to the nearest £10 in the case of allowances and to the nearest £100 in the case of rate thresholds and the age allowance income limit. Each year the index figures are to be set out in a Treasury order. In a year when the indexation adjustments are not overridden this order will show clearly the new figures for allowances and rate bands. In a year when the Chancellor proposes different figures in either direction, the index figures in the order will provide a basis for comparison.

Mr. Denzil Davies: If the clause is approved, what will be the cost next year of its provisions?

Mr. Lawson: If the right hon. Gentleman had read the Red Book he would have seen that there is no cost for 1980–81 for, as footnote (a) says, the change is effective only from 1981–82. He would also have seen that, for 1981–82, footnote (b) states:
 The cost will depend on increases in prices; and implementation will be subject to review by Parliament.
To the extent of 90 per cent.—and I use that figure advisedly—it is essentially a redrafting of section 22 of the Finance Act 1977 provision. It is an extension of the same type of indexation to the investment income surcharge, the higher rate thresholds and the higher rate bands. The question whether a real or a nominal cost is involved is important, but I shall not go into that now. When we talk about cost, we talk in terms of the extra revenue as a result of inflation which would have ensued if the changes had not been made.
Of that " cost ", 90 per cent. comes from the indexation of the various items on which the hon. Member for Birmingham, Perry Barr (Mr. Rooker) was so keen in 1977. Only 10 per cent. comes from the extension of indexation that we are incorporating in the Bill. If the hon. Member for Perry Barr seeks to vote down the clause, he will be voting as to 90 per cent. against what he fought so hard for in 1977.

Mr. Rooker: That is ludicrous. If I vote against the clause, I shall be voting against the repeal of the provisions in my amendment in schedule 18. I shall vote against the clause if my right hon. Friend calls for a Division. There is no argument about that.
The Minister has said that 90 per cent. of the " cost " is to what was there already and that 10 per cent. is to the addition. Is he saying that 10 per cent. of the extra cost—10 per cent. of the tax give-away—is to the 2 per cent. of taxpayers referred to by my hon. Friend the Member for Thurrock (Dr. McDonald)? Is that where the 10 per cent. is to go? Is not that unfair?

Mr. Lawson: It is not unfair. But, in any event, the hon. Gentleman's figures are not correct. I said that 10 per cent, arises as a result of the higher-rate tax and investment income surcharge threshold provisions together, the second of which was not included in the 2 per cent. referred to by the hon. Member for Thurrock (Dr. McDonald).
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I shall tell the Committee why I think that this is fair, but before doing that I ought to reply to another point made by the hon. Member for Perry Barr. The hon. Gentleman said that what he found particularly objectionable in the clause was the fact, as he claimed, that the higher-rate taxpayers would benefit twice—I think that that was his phrase—because of the indexation of the basic personal allowance thresholds and also the higher rate thresholds.
I see the right hon. Member for Llanelli (Mr. Davies) nodding at that, and I am surprised. It should be clear at least to the right hon. Gentleman, and possibly also to the hon. Member for Perry Barr—although I must say that, thinking of him and his former companion, Mrs. Wise, in those days in 1977, I am inclined to believe that they knew not what they did.
Nevertheless, it should be clear to the right hon. Gentleman and to the hon. Member for Perry Barr that what we are talking about here is a change in the value of money, and that applies to all the monetary amounts in the Finance Bill—all the allowances, whether the basic personal allowances, the investment income surcharge thresholds, the higher rate thresholds, or whatever. Therefore, if these are adjusted by the same amount, there is no double benefit. I hope that that is clear. I see, however, that it is not, so let me give an example, since it is important that the point should be established.
Let us suppose that this year there is a man with an income of £20,000 and, for the sake of simplicity, let us assume that he has a personal allowance of £2,000, with a basic rate of 30 per cent. on the first £10,000 of taxable income and 50 per cent. on the remainder. His tax bill will then be £7,000—30 per cent. of £10,000 and 50 per cent. of £8,000. I hope that the hon. Gentleman is with me so far. Thus, the proportion of that man's income which is going in tax is 35 per cent.
Let us next assume one year on that there is a rate of inflation of 10 per cent.——

Mr. Rooker: Oh!

Mr. Lawson: I hope that the hon. Gentleman will follow this example, since his accusation that there is double benefit is a serious one. Let us assume also—though it is not necessarily the case, as my hon. Friend the Member for Knutsford rightly pointed out—that the man's income also goes up by 10 per cent. with inflation from £20,000 to £22,000, so that he has no increased income in real terms.
If the personal allowance only were to be indexed, that man's tax bill would be as follows. He would pay £3,000 on the basic rate band as before, because there is no increase there. But on the higher rates he would pay £4,900, that is, 50 per cent. of £9,800, which is the £22,000 new income less £2,200 personal allowance less the £10,000 basic rate band. So in those circumstances his total tax would be £7,900—or 35·9 per cent. of £22,000. In other words, the burden of tax on an income which was not being increased in real terms would have risen by almost 1 per cent.
But if the personal allowance and the higher rate threshold are both increased by 10 per cent., the tax on the new income of £22,000 is calculated as follows: £3,300 of tax is paid at the basic rate—30 per cent. on £11,000 in the basic rate band, the basic rate band having been extended by the increase in the higher rate threshold under the clause—plus £4,400 at the higher rate, which is 50 per cent. of £8,800, the £8,800 itself being £22,000 less the £2,200 personal allowance less the £11,000 basic rate band.
The hon. Member for Perry Barr will be able to read this in Hansard and check it. He has told us how much he enjoys reading the reports of debates of this Committee on his train journeys, so he can do that on this occasion.
In the circumstances which I have set out, the tax bill would be £7,700, which is precisely 35 per cent. of £22,000. In other words exactly the same percentage of that man's income would go in tax next year as this year.
I quite understand that the hon. Gentleman might wish such a person to be worse off, but that is a separate point. To ensure that somebody is no worse off—and no better off, either, in real terms—the personal allowances and the higher rate threshold both need to be fully indexed in line with inflation. There is no double indexation. I hope that the hon. Gentleman will read that in Hansard tomorrow, and satisfy himself that this is so.

Mr. Rooker: It does not matter how many figures the Minister produces, because they do not hide the fact that raising the basic personal allowance and not changing the thresholds creates a spillover effect from one band to another. People in the higher rate bands benefit in cash terms more than someone who is not in those bands. If the bands are indexed, they have a double spoon out of the pot. They have gained twice. No amount of clever and sophisticated figures or presentational points will alter that fact.

Mr. Lawson: I hope that the hon. Gentlemen will pay attention. It is clear that someone on a higher income—leaving aside the question whether he is in the higher rate bands—will receive a larger cash benefit if allowances are increased. That is necesarily so as a result of the indexation provision for which the hon. Gentleman fought. I do not know what he is arguing about. Under this provision, if somebody is paying a certain amount of tax on his income in one year, that burden will not change in real terms simply and solely as a result of inflation. It will not go up or down. That is the effect of the clause.

Mr. Budgen: Will my hon. Friend tell the Committee about the Government's general position on indexation? When


the Tory Party was in Opposition, the general cry of the majority of the party was " Truth in taxation " which, as I understood it, meant the advocacy of indexation over a wide tax area. Are we to understand that indexation is now only to be advocated in this sphere, or is it to be widely extended?

Mr. Lawson: We are debating clause 23, which is concerned with the indexation of income tax. It will be helpful if we confine ourselves to that. I have debated the matter with my hon. Friend up hill and down dale for many years. He knows that I have always drawn a clear distinction between different forms of indexation and different contexts for indexation. I have always repudiated the suggestion that all forms of indexation are alike. I do not think that they are.

Mr. Budgen: Mr. Budgen rose——

Mr. Lawson: I shall give way to my hon. Friend for the last time.

Mr. Budgen: My hon. Friend has always said that there is a proper distinction to be drawn between the indexation of the taxation system and indexation in other areas of the State's activities. I do not remember his ever having drawn a distinction between the various forms of taxation. I should like him to comment on that.

Mr. Lawson: The only comment that I can make is that my hon. Friend must know that my right hon. and learned Friend the Chancellor of the Exchequer puts forward tax proposals to the House in his annual Budgets. Each year my hon. Friend is able to see the proposals of my right hon. and learned Friend for that year and for the future. It is not the custom for Treasury Ministers to predict the contents of future Budgets.
My hon. Friend said that he found the clause objectionable. I think he understood that there was an argument in equity in saying that if there were to be indexation of the income tax system it should apply equally to people at all levels. But he felt that it was appropriate that the rich should be especially highly taxed.
The Committee will recall—and this is germane to the debate—that the taxation of the better-off increased substantially as a result of inflation under the previous

Labour Government. I see the hon. Member for West Lothian (Mr. Dalyell) in his place. In the previous debate, he was commending the sagacity of Lord Lever. I share that judgment. It was Lord Lever who, in a television interview in 1978, when asked by Mr. Brian Walden about the iniquity of the then 83 per cent. top rate of income tax, said:
 Well, I must say that when it was put on, it was put on at a more realistic level than now applies. It was actually inflation that really made the tax burdensome. And I don't think that any Government ever responds quickly enough to the deforming of their tax structure by inflation. And we may be open to criticism for not responding fast enough to that.
That is exactly what happened. Therefore, I do not think that my hon. Friend should consider it perfectly all right to see the tax scales at the higher levels—which my right hon. and learned Friend the Chancellor of the Exchequer in his first Budget properly and deliberately introduced—progressively eroded by the effect of inflation unless Parliament clearly and openly decides that that should be so.
My hon. Friend the Member for Knutsford said that he felt there to be a distinction between my approach to this matter and his, because his approach was based on the principle of honesty in taxation. That is precisely the same as mine. It is a distinction without a difference. The phrase that I used with which I wearied many hon. Members on both sides of the Committee was " truth in taxation." I think that the distinction is very small.
The whole purpose of this provision—a purpose which commanded not only my support, but the support of pretty well the whole of the then Conservative Opposition in Standing Committee in 1977 when the earlier provision was introduced—is that there should be truth in taxation; that there should be openness. If we decide to tax people more heavily, fair enough, let us come to Parliament and say that we want to do that, and let us justify it to the House of Commons. If we wish particularly to tax the rich more heavily, as does the right hon. Member for Llanelli, let him come before Parliament—if he is ever given the opportunity to do so—and do it openly and explicitly and justify it.
What is objectionable is allowing inflation steadily, by stealth, to increase the tax burden—without any explicit changes in law and without any changes in the allowances—and to erode the value of those allowances. That was the argument time and again. That was why I introduced my amendment to the so-called Rooker-Wise amendment in 1977, making it absolutely clear that this was not mandatory and that the Government had the opportunity to put before Parliament a different figure if they wished to do so. That is why the clause is drafted with the phrase " unless Parliament otherwise determines ".
The right hon. Member for Llanelli, in opposing the clause, emerged not merely as a class warrior—which we know is one of the guises that he likes to put on from time to time, saying that the rich must be taxed more heavily and that it is monstrous that this provision will allow the rich to be taxed not so heavily—but as a cowardly class warrior. He is saying " I am fearful of coming to the House of Commons and saying openly that this index figure is not what the higher rate threshold should be. It should be at some lower figure. The rich should be taxed more heavily." The right hon. Gentleman did not want to do that. He wanted to clobber the rich by stealth. He wanted inflation to do the dirty work for him.
I suggest that the Committee should have no truck with that whatsoever. There is nothing in this clause that prevents him and his party—if the nation is ever unfortunate enough to have them in government again—from making the tax allowances, tax rates, tax thresholds or whatever they wish to suit their malice. It simply obliges them to do so openly. I commend the clause to the Committee.

9 pm

Mrs. Kellett-Bowman: By indexing these allowances, my hon. Friend the Financial Secretary destroys much of the Budget's buoyancy and, therefore, he is striking a strong blow at inflation and making taxation infinitely more honest than it has been in the past.

Mr. Lawson: This clause does indeed make taxation more honest than it has been in the past. Since my hon. Friend has mentioned the question of inflation,

I should like to say that I agree with the right hon. Member for Llanelli that in past the buoyancy of revenue, due not to economic growth but solely to inflation, enabled the Government who were responsible for inflation to get more money in by stealth and, therefore, to spend more money and to increase public expenditure. That was one of the evils of the unindexed system, and it is a further reason why I commend this clause to the Committee.

Mr. David Penhaligon: I suppose that with this new edict of honesty in taxation the Minister now admits that he has increased taxation. It is a pity that he did not attend yesterday's debate, when we discussed the abolition of the narrow tax band. The Government then argued that they had reduced taxation for the lower-paid, but today, in the new edict of honesty in taxation, the Government have admitted that taxation has been increased, and that is an improvement.
Having listened to the Minister describing how easy it is to avoid the provisions of the clause, I wonder whether it is worth including it. He outlined how easy it would be for the Government to do more or to do less. I shall tell him now precisely what will happen over the next few years. We have been down this path before. As long as we are in a period of rising inflation the Government will index the tax allowances, because even that saves them money, when, in effect, they can claim that it does not. By that I mean that if we have a rate of inflation of 10 per cent. one year, and we then enter into a 20 per cent. inflation year, on the historic index about which the Minister has spoken, if it is indexed on last year's inflation rate of 10 per cent., it has saved the Government money. I remember that happening with regard to pensions when the Labour Party was in Government. We went through a period of rising inflation, and then the jackpot year arrived.
What will the Government do if ever the day should arrive when there is a substantial reduction in inflation? Let us pretend that somehow the Government can move from the present level of inflation of 21 per cent. to the level that existed when the Lib-Lab pact ended. Let us pretend that they can manage as well as that within the next 12 months.


Is the Minister really telling the House that he will index the thresholds for tax next year by 21 per cent. in a year when inflation is running at 8 per cent? We all know that he will not, because he will not be able to find the money to do so. The Labour Government did not do so on pensions. They carried out one of the greatest money-saving fiddles of all time. They indexed the pension year after year in a period of rising inflation. When the year arrived when we fell off the edge and started getting back to more rational levels of inflation in the year when pensioners should have had a rise of 18 per cent. in a period of about 10 per cent. inflation the Government could not find the money to give the increase.
Precisely the same will happen to this clause if ever we should get back to saner levels of inflation. I suspect that the Financial Secretary and at least the Minister of State, who is notorious these days for being honest, know that that is so.
The argument between the hon. Member for Birmingham, Perry Barr (Mr. Rooker) and the Minister on the question whether the highest income groups were helped twice was interesting. I suspect that technically the Minister is right, because he ends up arguing that in a period of 20 per cent. inflation the poor man who is earning £20,000 a year has in effect received a reduction in income of £4,000 a year, whereas the man earning only £2,000 a year has received a reduction in his income of only £400. Therefore, clearly, we must have far greater sympathy for the man on £20,000 a year, because he has received a far larger reduction in his income in real terms. I know which of those two people I would rather be in a period of inflation.
The fact that the non-indexing of the threshold has put the squeeze on take-home incomes for some of those earning between £15,000 and £20,000 a year, from now on, given the adjustments in recent years, causes me no anguish whatsoever.
Therefore, I shall vote against the clause not least on the basis that I believe that it takes up a couple of pages of the Bill which are of no value.

Mr. Budgen: Will the hon. Gentleman be good enough to tell us what the Liberal Party's view is on indexation?

As I recollect it, Mr. John Pardoe was one of the first to be in favour of general indexation. I think that we need a much more comprehensive statement from the Liberal Party, particularly as it is presumably preparing itself for another period of office with the Labour Party.

Mr. Penhaligon: I am quite convinced that our stand on indexation is every bit as united and common as were the arguments advanced from the Conservative Benches during the previous debate. All that I can say is that in the Liberal Party there are not more than 11 views. There appear to be far more views on the Conservative Benches. [HON. MEMBERS: " Answer."] Given the chance, we shall vote against the clause, because it is giving money to those on levels of income that mean that they do not need help. If the Government can increase their thresholds, they can do it anyway.

Mrs. Kellett-Bowman: Answer.

Mr. Penhaligon: Finally, I believe that the whole clause is of very doubtful value indeed, because as we enter a period of falling inflation the Government will renege on the indication of a promise that they are making now.

Mr. Denzil Davies: I think that the Financial Secretary gave the game away in his final sentence. He accused Opposition Members of wishing to increase taxation by stealth so that we could use that money for public expenditure. The corollary of that is exactly what the Financial Secretary is doing. He is doing the best that he can within his power, within the limits of Parliament, to put this money outside the possibility of it being spent on public expenditure. In other words, by having this clause and by making it necessary to come to Parliament to change it, money which otherwise would have been taken by taxation from the better-off and which could be used for public expenditure and for the worse-off in the community, is taken outside that area as far as the hon. Gentleman can do it.
That is the burden of the hon. Gentleman's argument. I think that that is what he always meant to do with the Rooker-Wise-Lawson amendment. I think that he made it clear in the statement at the end of his speech.
As in all debates on indexation, we have had some interesting views. The hon. Member for Knutsford (Mr. Bruce-Gardyne), who is not now present, tried to draw a distinction. I agree with the Financial Secretary here. The hon. Member for Knutsford tried to reconcile the purity of his views on sound money and inflation with the desire to see the higher income groups being indexed. To put it kindly, he made a very ambivalent speech trying to reconcile the two, and he failed.
The hon. Member for Wolverhampton, South-West (Mr. Budgen) made a very honest speech. I hope that he is not paired this evening, because I have heard him making an honest speech such as that before in Committee, and he was paired for some reason. I hope that this evening he will come into the Lobby with us. He is an honest man.

Mr. Budgen: I am not paired.

Mr. Davies: Perhaps that escape route is not open to the hon. Gentleman this evening.
The Financial Secretary tried to argue this matter away on the basis that the clause deals with the personal allowances of 90 per cent. of the people. But as my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) pointed out, it is not necessary to have this clause to deal with those. Schedule 18 does not have to be repealed. The drafting of the original Rooker-Wise amendment might not have been as good as the parliamentary draftsmen might have liked. However, it was perfectly all right. The courts would have known what it meant. There would not have been any problem

Division No. 332]
AYES
[9.11 pm


Alexander, Richard
Brinton, Tim
Critchley, Julian


Ancram, Michael
Brecklebank-Fowler, Christopher
Dean, Paul (North Somerset)


Arnold, Tom
Brooke, Hon Peter
Dickens, Geoffrey


Aspinwall, Jack
Brown, Michael (Brigg & Sc'thorpe)
Dorrell, Stephen


Atkins, Robert (Preston North)
Browne, John (Winchester)
Douglas-Hamilton, Lord James


Baker, Nicholas (North Dorset)
Bruce-Gardyne, John
Dover, Denshore


Bendall, Vivian
Bryan, Sir Paul
Dunn, Robert (Dartford)


Benyon, Thomas (Abingdon)
Bulmer, Esmond
Dykes, Hugh


Berry, Hon Anthony
Cadbury, Jocelyn
Eden, Rt Hon Sir John


Best, Keith
Carlisle, Kenneth (Lincoln)
Fairbairn, Nicholas


Bevan, David Gilroy
Carlisle, Rt Hon Mark (Runcorn)
Faith, Mrs Sheila


Biffen, Rt Hon John
Chalker, Mrs Lynda
Farr, John


Biggs-Davison, John
Clark, Sir William (Croydon South)
Fenner, Mrs Peggy


Blackburn, John
Clarke, Kenneth (Rushcliffe)
Fisher, Sir Nigel


Blaker, Peter
Cockeram, Eric
Fletcher, Alexander (Edinburgh N)


Body, Richard
Cope, John
Forman, Nigel


Boyson, Dr Rhodes
Corrie, John
Fowler, Rt Hon Norman


Braine, Sir Bernard
Costain, A. P.
Fox, Marcus


Bright, Graham
Cranborne, Viscount
Fraser, Rt Hon H. (Stafford & St)

of interpretation. There is no need to repeal that provision.

The Government are using the amendment as an excuse to enable the Financial Secretary and his colleagues to extend indexation to the higher paid. He will not get away with that type of debating trick. He should not argue that a vote against the clause is a vote against indexation for the lower paid, Indexation for that group is safeguarded, even if the clause is defeated. The Government believe in indexation for the group for whom they feel responsible. That group—the better off—voted for the Conservative Party. It will get indexation. The unemployed, the disabled and those on invalidity benefit will not get indexation.

The Financial Secretary said that I wanted to increase the taxation of the rich. Why do not the Government provide the same type of indexation for the unemployed as they are providing for the rich? Why not provide the same indexation for the rich as they are providing for the unemployed? The Government are not doing that. The Financial Secretary is giving the rich an indexation rate of 21 or 23 per cent. However, the unemployed will be given an indexation rate of 11 or 12 per cent., perhaps less. Ultimately we are discussing social justice. The clause may be a small clause in the Finance Bill, but once again we see the Government's priorities. The rich benefit. The rich get richer and the unemployed and the weak suffer under a Tory Government.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 185, Noes 146.

Fraser, Peter (South Angus)
Madel, David
Rossi, Hugh


Gardiner, George (Reigate)
Major, John
Rost, Peter


Goodlad, Alastair
Marlow, Tony
Royle, Sir Anthony


Gorst, John
Mates, Michael
Sainsbury, Hon Timothy


Gow, lan
Mather, Carol
St. John-Stevas, Rt Hon Norman


Gower, Sir Raymond
Maude, Rt Hon Angus
Shelton, William (Streatham)


Gray, Hamish
Mawby, Ray
Shepherd, Colin (Hereford)


Green way, Harry
Mawhirnney, Dr Brian
Silvester, Fred


Griffiths, Peter (Portsmouth N)
Maxwell-Hyslop, Robin
Sims, Roger


Grylls, Michael
Mellor, David
Skeet, T. H. H.


Gummer, John Selwyn
Meyer, Sir Anthony
Speller, Tony


Hamilton, Hon Archie (Eps'm&Ew'll)
Miller, Hal (Bromsgrove & Redditch)
Spence, John


Hannam, John
Mills, Iain (Meriden)
Spicer, Michael (S Worcestershire)


Hawksley, Warren
Mills, Peter (West Devon)
Squire, Robin


Heseltine, Rt Hon Michael
Miscampbell, Norman
Steen, Anthony


Hicks, Robert
Mitchell, David (Basingstoke)
Stewart, lan (Hitchin)


Higgins, Rt Hon Terence L.
Moate, Roger
Stewart, John (East Renfrewshire)


Hill, James
Morgan, Geraint
Stradling Thomas, J.


Hogg, Hon Douglas (Grantham)
Morrison, Hon Charles (Devizes)
Taylor, Teddy (Southend East)


Holland, Philip (Carlton)
Morrison, Hon Peter (City of Chester)
Thatcher, Rt Hon Mrs Margaret


Hooson, Tom
Mudd, David
Thomas, Rt Hon Peter (Hendon S)


Hunt, John (Ravensbourne)
Murphy, Christopher
Thompson, Donald


Hurd, Hon Douglas
Needham, Richard
Thornton, Malcolm


Johnson Smith, Geoffrey
Nelson, Anthony
Townend, John (Bridlington)


Jopling, Rt Hon Michael
Newton, Tony
Trippier, David


Kaberry, Sir Donald
Page, Rt Hon Sir R. Graham
Viggers, Peter


Kellett-Bowman, Mrs Elaine
Page, Richard (SW Hertfordshire)
Wakeham, John


King, Rt Hon Tom
Parris, Matthew
Waldegrave, Hon William


Kitson, Sir Timothy
Patten, Christopher (Bath)
Walker, Bill (Perth & E Perthshire)


Langford-Holt, Sir John
Patton, John (Oxford)
Walker-Smith, Rt Hon Sir Derek


Lawrence, Ivan
Pattie, Geoffrey
Wall, Patrick


Lawson, Nigel
Pink, R. Bonner
Waller, Gary


Le Marchant, Spencer
Pollock, Alexander
Ward, John


Lennox-Boyd, Hon Mark
Porter, George
Watson, John


Lester, Jim (Beeston)
Prentice, Rt Hon Reg
Wheeler, John


Lloyd, Peter (Fareham)
Price, David (Eastleigh)
Whitney, Raymond


Loveridge, John
Proctor, K. Harvey
Wiggin, Jerry


Luce, Richard
Rees, Peter (Dover and Deal)
Williams, Delwyn (Montgomery)


Lyell, Nicholas
Rees-Davies, W. R.
Wolfson, Mark


McCrindle, Robert
Renton, Tim
Young, Sir George (Acton)


Macfarlane, Neil
Rhodes James, Robert



MacKay, John (Argyll)
Rhys Williams, Sir Brandon
TELLERS FOR THE AYES:


McNair-Wilson, Michael (Newbury)
Rifkind, Malcolm
Mr. John MacGregor and


McNair-Wilson, Patrick (New Forest)
Roberts, Michael (Cardiff NW)
Mr. David Waddington




NOES


Allaun, Frank
Douglas-Mann, Bruce
Johnston, Russell (Inverness)


Alton, David
Dubs, Alfred
Jones, at Hon Alec (Rhondda)


Archer, Rt Hon Peter
Duffy, A. E. P.
Jones, Dan (Burnley)


Armstrong, Rt Hon Ernest
Dunn, James A. (Liverpool, Kirkdale)
Kerr, Russell


Ashley, Rt Hon Jack
Dunwoody, Mrs Gwyneth
Kilfedder, James A.


Atkinson, Norman (H'gey, Tott'ham)
Eadie, Alex
Lambie, David


Bagier, Gordon A. T.
Eastham, Ken
Leighton, Ronald


Beith, A. J.
Ewing, Harry
Lewis, Ron (Carlisle)


Bennett, Andrew (Stockport N)
Field, Frank
Litherland, Robert


Booth, Rt Hon Albert
Fitch, Alan
Lofthouse, Geoffrey


Bottomley, Rt Hon Arthur (M'brough)
Flannery, Martin
Lyons, Edward (Bradford West)


Bray, Dr Jeremy
Fletcher, Ted (Darlington)
McCartney, Hugh


Brown, Hugh D. (Provan)
Foot, Rt Hon Michael
McDonald, Dr Oonagh


Brown, Robert C. (Newcastle W)
Forrester, John
McKay, Allen (Penistone)


Buchan, Norman
Foster, Derek
MacKenzie, Rt Hon Gregor


Callaghan, Rt Hon J. (Cardiff SE)
Freeson, Rt Hon Reginald
Maclennan, Robert


Callaghan, Jim (Middleton & P)
Garrett, John (Norwich S)
Marshall, Dr Edmund (Goole)


Campbell-Savours, Dale
Grant, George (Morpeth)
Mason, Rt Hon Roy


Canavan, Dennis
Grant, John (Islington C)
Maxton, John


Carmichael, Neil
Hamilton, James (Bothwell)
Mellish, Rt Hon Robert


Clark, Dr David (South Shields)
Hamilton, W. W. (Central Fife)
Mikardo, lan


Cocks, Rt Hon Michael (Bristol S)
Harrison, fit Hon Walter
Millan, Rt Hon Bruce


Coleman, Donald
Hart, Rt Hon Dame Judith
Mitchell, Austin (Grimsby)


Concannon, Rt Hon J. D.
Haynes, Frank
Mitchell, R. C. (Soton, ltchen)


Conlan, Bernard
Hefter, Eric S.
Morris, Rt Hon Alfred (Wythenshawe)


Cook, Robin F.
Hogg, Norman (E Dunbartonshire)
Morris, Rt Hon Charles (Openshaw)


Cowans, Harry
Holland, Stuart (L'beth, Vauxhall)
Moyle, Rt Hon Roland


Crowther, J. S.
Hooley, Frank
Newens, Stanley


Cryer, Bob
Horam, John
O'Halloran, Michael


Cunliffe, Lawrence
Howells, Geraint
O'Neill, Martin


Dalyell, Tam
Hudson Davies, Gwilym Ednyfed
Palmer, Arthur


Davies, Rt Hon Denzll (Llanelll)
Hughes, Mark (Durham)
Parry, Robert


Davis, Terry (B'rm'ham, Stechford)
Hughes, Robert (Aberdeen North)
Penhaligon, David


Dempsey, James
Janner, Hon Greville
Prescott, John


Dewar, Donald
Jay, Rt Hon Douglas
Richardson, Jo


Dixon, Donald
John, Brynmor
Roberts, Albert (Normanton)


Dobson, Frank
Johnson, James (Hull West)
Roberts, Ernest (Hackney North)


Dormand, Jack
Johnson, Walter (Derby South)
Robinson, Geoffrey (Coventry NW)







Rooker, J. W.
Strang, Gavin
Williams, Rt Hon Alan (Swansea W)


Ross, Ernest (Dundee West)
Thomas, Dafydd (Merioneth)
Wilson, Gordon (Dundee East)


Sever, John
Thomas, Jeffrey (Abertillery)
Wilson, William (Coventry E)


Silkin, Rt Hon John (Deptford)
Thomas, Dr Roger (Carmarthen)
Winnick, David


Silverman, Julius
Tinn, James
Woodall, Alec


Skinner, Dennis
Varley, Rt Hon Eric G.
Woolmer, Kenneth


Snape, Peter
Watkins, David
Wrigglesworth, lan


Spriggs, Leslie
Welsh, Michael
Young, David (Bolton East)


Steel, Rt Hon David
White, Frank R. (Bury ft Radcliffe)



Stewart, Rt Hon Donald (W Isles)
Whitehead, Phillip
TELLERS FOR THE NOES:


Stoddard, David
Whitlock, William
Mr. John Evans and


Stott, Roger
Wigley, Dafydd
Mr. George Morton

Question accordingly agreed to.

Clause 23 ordered to stand part of the Bill.

Clause 53

CHARITABLE DISPOSITIONS FOR PERIODS WHICH CANNOT EXCEED THREE YEARS

Mr. Denzil Davies: I beg to move amendment No. 18, in page 36, line 17, at end add
' but so that this section shall not apply to any charity which exists for the advancement of education and where 75 per cent. or more of the gross receipts of such a charity is derived from money payable under the deeds of covenant and payments made by the pupils or by individuals on their behalf.'.
This clause deals with deeds of covenant in favour of charities. The law has always been that a deed of covenant that enabled the payer to deduct the amount from his tax had to be for a period of six years or more and generally seven. The clause reduces the period to three years or more. As the Chancellor said in his Budget Statement, there will therefore be a greater incentive to make payments by deed of covenant. Under the clause, payments go to charities. The amendment seeks to prevent the benefits of the clause going to certain educational establishments.
One of the difficulties with charities is the statute of Elizabeth I, which provides that any foundation or institution for the advancement of education is a charity. We therefore have the extraordinary situation of Eton college being a charity because of the anomaly of an Act passed in 1601 or thereabouts. We have not been able to find a more sensible or more modern definition of charities. We could go into the recommendations in the Goodman report, but they do not help all that much. It is a difficult problem. The drafting of the amendment may be somewhat convoluted, but I hope that the Minister of State will not nit-pick at it and will consider the amendment in the spirit in which it was drafted.
It is a rather good amendment, because it seeks to isolate the public school element in education from some of the institutions that exist as the result of he payment of fees, perhaps from local authorities. Schools for the mentally handicapped are, in the main, supported by local authorities who pay the fees of the pupils. The amendment does not seek to strike at those schools.
We seek to deny the benefits of the clause to schools where 75 per cent. of the gross receipts are made up of fees paid by individuals or by deeds of covenant. Most public school receipts are made up of fees paid by individuals and not by deeds of covenant. We say that it is not right that taxpayers should subsidise Eton. The deeds of covenant provision means that the general body of taxpayers subsidises institutions such as Eton out of the general body of taxation. I do not know, any more than do the Government, what proportion of the gross receipts of public schools are made up from deeds of covenant, but there is no case for saying that the general body of taxpayers should subsidise such institutions.
The Government deny subsidies to industry, saying that it must stand on its own feet. Yet the clause gives tax benefits for deeds of covenant for three years-or more which can and will benefit educational establishments that ought to stand on their own feet.

Mr. A. J. Beith: The right hon. Gentleman was fearful of the Minister nit-picking on the clause, but he must accept that crucial to whether we can support such an amendment is the question whether a clear line can be drawn between Eton college and, for example, a school in my constituency that provides education for autistic children, most of the fees for whom are paid by their parents, with some being; paid by local authorities. How does the 75 per cent. formula, which includes both money under deeds of covenant and


tuition fees, in no particular balance, distinguish between schools, particularly as the right hon. Gentleman does not know the proportions in some of the major public schools?

Mr. Davies: That is a fair point. It is the problem that faces us in such circumstances and it is not one to run away from. I believe that in most cases the kind of schools mentioned by the hon. Gentleman would probably be outside the ambit of the clause because 75 per cent. of the gross receipts would not have come from payments by individuals. Much of the income of those schools is made up increasingly by payments from local authorities because parents cannot afford to send their children to these schools. If hon. Members wish the 75 per cent. to become a higher figure, I am prepared to accept such a proposal.

Mr. Beith: I am trying to find out what the amendment means. I understand that payments made by or on behalf of pupils—which would surely cover those made by local authorities—contribute to the achievement of the 75 per cent. figure. The only kind of institution that could readily be exempt from the provision would be one that had a substantial income from endowments, the very kind of institution that the right hon. Gentleman may be anxious to exclude.

Mr. Davies: The last few words of the amendment show that the payments are made by the pupils or by individuals on their behalf. The word " individuals " is chosen with some care to exclude fees paid by local authorities. The 75 per cent. figure may not be the right one. That is why I argue that this clause would not take into account the kind of school to which the hon. Gentleman referred. I chose the word " individuals " deliberately. The payments have to come from individuals and not from local authorities or institutions. The Minister will no doubt say whether the 75 per cent. is too low or too high a figure. If the hon. and learned Gentleman wishes to bring forward an amendment on Report to increase it, we shall examine such a proposal.
We are not debating whether there should be public schools. We are debating the principle whether deeds of covenant that are a form of subsidy should

be allowed as a deduction from income. Why should someone be allowed a deduction from his income for tax purposes through making a deed of covenant? Why cannot there be a deduction to make other payments? What is so special about an annual payment or a deed of covenant? It is anomalous that, because someone makes payments from his income, not for any trade or business purpose but under a silly little legal document stating that payments must be made for three years or more, he should be allowed a deduction. If I pay for food with my income I am not allowed a deduction.

Mr. Chris Patten: It may be an anomaly, but it has existed in one form or another since 1803.

Mr. Davies: It is because it has existed since 1803 that it is increasingly becoming an anomaly. The present position arises from the framework of the 1803 legislation and subsequent taxation decisions. It makes no sense in present legislation. A person who makes a covenant for two years does not get the tax deduction. If it is made for three years, he gets the tax deduction. If one forgets to put a piece of candlewax on a piece of paper, although it is for three years, there is no deduction. That shows the ridiculous anomaly.
There are charities that one would wish to support. I am merely saying that this is a subsidy given by the general body of taxpayers. It will go not only to Oxfam and to the Save the Children Fund—one would not wish to do anything to prevent giving to these worthy charities—but to institutions such as public schools that do not need the money and should not have it. Why should they be supported by the general body of taxpayers? If parents wish to send their children to public schools, that is another question. We argue that there should not be this extension on deeds of covenant. It will benefit institutions that do not need such benefit. We do not believe that the general body of taxpayers should subsidise these institutions, as would happen under these deeds of covenant.

Mr. Beith: I listened with some care to the right hon. Member for Llanelli (Mr. Davies) because, as he said, it is not a problem that we ought to run away from. We must consider carefully whether it is right that the covenant system should


benefit to a considerable extent the private sector of education.
I became more and more worried, however, as the right hon. Gentleman seemed to expound a policy of general hostility to the principle of the covenant that has been of immeasurable value to the Churches, to the relief organisations, and to charities for which, in an afterthought, the right hon. Gentleman said he welcomed support. He spent a considerable amount of time ridiculing the process by which individuals indicate by means of a document that they will make regular payments over a period of years to benefit a charity and, as a result of that, find that the taxes that they pay on those moneys are reimbursed to those charities. He may find that anomalous. but it has been of considerable benefit to a wide range of charitable organisations.

Mr. Denzil Davies: The hon. Gentleman is being unfair to the argument. I made it quite clear that we are not objecting to the clause. I said that it was anomalous that someone can give away part of his income and get a deduction merely because he does it under a three-year covenant. There may be social cases in which we may wish that to be done. My argument was that we do not wish it to be done in favour of institutions such as the public schools, which neither need nor deserve the money.

Mr. Beith: I appreciate the right hon. Gentleman's specific argument about public schools, but listening with an open mind to what he said I formed the opinion that he viewed the whole principle of the covenant with considerable scepticism and perhaps disapproval. He says now that there may be social grounds upon which some organisation should benefit, but the whole sphere of charity law has presented us with many problems of definition and it is far from satisfactory now. There are some bodies that do not benefit from covenants which I should like to see benefit. There are bodies that are denied charitable status, particularly in the area of world development and aid—there is the United Nations Association—which put forward causes and therefore fall foul of the present legal definition of " charity ". Nevertheless,

they would be regarded by most hon. Members as desirable organisations.
Our present charity law is full of anomalies. It seems to be generous to some groups, which exist mostly for private and limited benefit, and is rather ungenerous to other groups simply because they have to carry their convictions into general public discussion. That is regarded as a political activity. I believe, as the Goodman committee believed, that we ought to have a general review of the law of charities and the various kinds of institutions that should benefit from them.
I am not sure that the amendment carries us far along that road. It seems to be a limited stab at a principle to which the Labour Party has firmly nailed its colours, that charitable reliefs should be withdrawn from the private education sector generally. There are quite respectable arguments for doing so. I have always found it difficult to avoid penalising the giving of money for educational purposes while continuing to encourage, by reliefs, the giving of money for other purposes. We could find ourselves in the ultimate absurdity where a major philanthropist who proposed to give substantial annual donations to an educational body that was recognised as having great value was not given the benifit of a covenant, whereas if he gave the same sums of money to a theatre trust, an orchestra, or any of a number of other organisations, he would get the full benefits of relief. The amendment does not solve many of these problems.
I am anxious to protect the principle that the means by which we encourage private donation in this country should not be pushed out of education altogether. I want to encourage more private donation and support in the State education system. I do not want to replace the essentials that the State system should provide, but I want to give to State schools some of the private benefaction benefits enjoyed by the private sector. That already applies in our universities and some of our polytechnics, as well as in some of those schools whose history has meant that they have moved over the years from private foundations to being part of the State school system.
Many of those schools enjoyed particular benefits and endowments which allowed them to provide extra facilities. I wish to encourage that. I would not like to see it discouraged.
I am not happy that we should use this device to try to change the law on this subject. I was more impressed by the approach recommended by the old Education, Arts and Home Office Sub-Committee—a voice from the past Select Committee system of the House—which produced a detailed report on charities. That Sub-Committee suggested that in order to overcome the problem we should apply a new test to charitable status in education. That test would involve purposes beneficial to the community.
That also presents difficulties and problems, but I think that that is a more fruitful approach than simply saying that now that the Government have decided to broaden the covenant provision we shall create a type of second-class charity that will receive covenant benefits but not on the more extended scale as now proposed by the Government.
That is all that the amendment does. It does not wipe out covenant benefit for public schools; it simply means that they will be on the seven-year covenants that prevail today while other organisations and benefit from the four-year convenant system. It is not even the case that the change from seven to four years will necessarily increase the amount of money paid over by the Exchequer in the form of reimbursed covenants. That will depend on whether individuals take advantage of the new scheme to renew their covenants more regularly.
What, after all, is the purpose of what the Government are doing by this clause? I presume that it is partly to overcome the problem that has made small covenants almost valueless to charities, because by the time the fourth and fifth year are reached inflation has raised the subscription for the people who are still paying on the ordinary basis far above the level of applying to the individual who has covenanted, and above the combined level of the covenant and his subscription and the returned tax that the covenant system provides.
This is a small measure of reform. It is not one to which we can readily attach

a major change in the category of bodies that are entitled to the benefits of charity law relief. For those reasons, I am not at all happy about the amendment.

Mr. Douglas Hogg: I listened with great interest, as I always do, to the speech by the right hon. Member for Llanelli (Mr. Davies). However, I must tell him that I disagree considerably with what he has said to the Committee tonight.
Perhaps I should declare an interest. It will not surprise any hon. Member to know that I went to a fee-paying school or that I intend to send my children to a fee-paying school. If that be an interest, I declare it.
I think that the amendment proposed by the right hon. Gentleman is misconceived. His principle objective is, as I understand it, to isolate the public school element from other classes of charities of an educational nature. I think that that is an extremely dangerous principle to adopt. There is no doubt that the public schools are properly defined as charities within the Act. They fulfil all the essential criteria and the opposition to their inclusion within the scope of charities for the purposes of tax concessions and covenants is largely subjective. I do not mind the right hon. Gentleman opposing the public schools but I dislike his attempt to introduce his particular prejudice into legislation.
Once we decide to make a distinction between charities on the grounds of personal prejudice we establish an extremely dangerous principle which may be followed by others less worthy than the right hon. Gentleman.

Mr. Denzil Davies: Nobody is seeking to deny charitable status to any of the schools. What I say in the amendment is that tax relief shall not be given to someone who pays money to that particular body. Taxation is always about prejudice or priorities, however one may wish to describe it. That is what taxation is about. It is about choice.

Mr. Hogg: The right hon. Gentleman cannot have thought deeply before he made that intervention. The purpose of his amendment is to make a distinction in law and in fact between classes of institutions which otherwise would qualify as charities. He is saying " Because you


do not satisfy my personal prejudices, for these purposes you will not rank as a charity, but other charities will." That distinction is not based on law but on subjective prejudice. The Committee should not accept that.
I welcomed what the hon. Member for Berwick-upon-Tweed (Mr. Beith) said. He made two important points. He said that the amendment will catch Eton but that it will also catch the specialist schools. That might be a result of unhappy drafting—

Mr. Denzil Davies: Can the hon. Gentleman explain which schools will be caught by the amendment?

Mr. Hogg: Once again the right hon. Gentleman did not think carefully before he made an intervention. Clearly, he did not listen to the hon. Member for Berwick-upon-Tweed. He was talking about specialist schools for autistic children. Frequently in our constituencies—although apparently not in the constituency of the right hon. Member for Llanelli—we are involved with specialist schools. I am sorry if the right hon. Gentleman does not know about them, but the rest of the Committee does.
The rationale and justification for the covenant system is important. When somebody puts a portion of his income out of his own disposition for a prolonged period it is wrong that that portion of income should attract tax. That is an important proposition, which has proved highly beneficial to many charities throughout the land. Once again, prejudice comes into the argument. The right hon. Member for Llanelli says that as a general proposition it is jolly good but when it comes to public schools, of which he happens to disapprove, it is jolly bad. The principles basically are indivisible. Once they are weakened in respect of one class of institution or charity, they are weakened in respect of them all.
One can always argue with a degree of respectability that institutions such as public schools should not receive concessions. Such arguments would be more attractive if they were advanced from a party other than the Labour Party. On

this matter its prejudice and inherent hostility is well known and, in effect, it disqualifies members of that party from expressing a rational view on matters of some importance.

Mr. Campbell-Savours: The comments by the hon. Member for Grantham (Mr. Hogg) are understandable. He comes from a family of substance, which has sent generations to public schools. He probably feels a family requirement to defend the privileges and the extension of privileges that the public schools seek.
The Newsom report, published in 1968, recommended that action be taken to terminate the fiscal and summary reliefs on schools that are charities but that do not serve a truly charitable purpose. The all-party House of Commons Expenditure Committee which considered the question of charities was chaired by the hon. Member for Plymouth, Drake (Miss Fookes). The Committee's unanimous report of 1975 states:
 Charitable status should be given to only those institutions which manifestly devote the education they provide towards meeting a clear range of educational needs throughout the whole community.
In my view, that is hardly in accordance with the case advanced by the hon. Member for Grantham. I cannot think that he was suggesting—or perhaps he was—that the schools that he was seeking to protect would fall within the criteria laid down in that statement.
A committee on charities under the chairmanship of Lord Goodman, reporting in 1976, subscribed to the view that in some cases charitable status should not be granted. It said that there was considerable feeling in the committee that a point might be reached when facilities offered by an educational establishment were so expensive or in some other way so exclusive that only a tiny fraction of the community could enjoy those facilities. In such cases there is a strong argument for saying that charitable status should not be granted.
The widespread feeling that that point of exclusivity was already reached many years ago was pointedly expressed by a member of the Goodman committee—a former Member of the House, Mr. Ben Whitaker—when he said in his minority report:
 I fail to see why the community should be compelled to support financially exclusive


schools which are restricted largely to those families who are already privileged.
I think that, in moving the amendment, my right hon. Friend the Member for Llanelli (Mr. Davies) was trying to produce a form of wording which, prior to a review of charity law, would have the effect of preventing some of the benefits that exist at the moment going to certain educational establishments. I feel that all this begs the question. Although my right hon. Friend felt it necessary to confine himself to the fine print of the financial nature of the amendment, I feel that we should in some way be allowed to widen the discussion a little—perhaps not going into the merits of the public schools but certainly commenting on the reason why certain of us would wish to support the amendment tonight.
In my constituency there is a long tradition of objection on this matter. In 1958 Mr. Fred Peart, now my noble Friend Lord Peart, moved a resolution at a national conference of the Labour Party calling for local authorities
 to take over all the direct grant schools in their areas, for the abolition of fee paying in any school and the integration within the State education system of all those independent schools which could be made available as part of the general education plan.
That resolution on behalf of the Workington constituency Labour Party was defeated by approximately ½ million votes, with a vote against of 3½ million. But why did that resolution come from the Workington constituency Labour Party?
I think that it might be in order to trace some of the origins of the so-called public schools. I have done a little research, and my information is that they were never devised for the so-called affluent in society. On the contrary, they were devised for poor families in given localities where there were problems in education. For example, Eton, which, if my information is correct, was set up in 1440, under Henry IV, was established specifically for young boys of good character but poor—note " poor "—and needy. I wonder how many hon. Members on the Conservative Benches, and, indeed, a few on these Benches, could be said to be——

Mrs. Kellett-Bowman: The excellent grammar school that I had the privilege of attending comprised a very high proportion

of precisely those youngsters to whom the hon. Gentleman is referring, until the Labour Party insisted on comprehensivisation, in which event, although it was founded only in 1936, it became the exclusive property of those who could pay. In my view, that is totally wrong.

Mr. Campbell-Savours: I do not know about the educational problems of Lancashire. The hon. Lady will recall that on one occasion I was tempted to table a number of questions on the problems of Lancashire. I ask her not to tempt me again with the offer to table more questions on matters relating to her constituency.
The character of the schools has changed. Over the past 70 or 80 years there has been almost a social revolution in Britain in terms of class. With the development of a strong semi-professional nouveau riche class, of which a number of hon. Members are no doubt the products, considerable pressure has been exerted on the institutions of private education to accept the public school as a ladder for social aggrandisement, if that be the word. I think that it was R. H. Tawney who said that the rising middle class, if often uneducated itself, was not unaware of the advantages of education, nor was it lacking in ambition. It looked to the schools to provide an addition to a moral intellectual discipline, a common platform enabling its sons to associate on equal terms with those families who, if increasingly outdistanced in income, still diffused a faint aroma of social security.
It seems that the schools provided for a booming nouveau riche class—the mechanism by which they would clamber in their lust to surface at the top. It was a public schools commission report in 1968 which, commenting on the divisiveness of public school education, said:
 The public schools are not divisive simply because they are exclusive. An exclusive institution "—

Mr. John Townend: Will the hon. Gentleman tell the Committee of his personal experience of public schools?

Mr. Campbell-Savours: I shall willingly tell the hon. Gentleman about my personal experience. I attended a direct grant boarding school, and my sister attended a public school. But that does not detract from the fact that we hold


certain views, and were elected to the House to express them. I intend to do so. I object to the system. I would like to see the whole system abolished. It is appalling that we perpetuate a system of social divisiveness, and divide children so early in life into divisions that often last for the balance of their lives.
The report went on to state:
 An exclusive institution becomes divisive when it arbitrarily confers upon its members advantages on a arbitrary selected membership, which starts with an advantageous position in life. There is no sign that these divisions will disappear if the schools are left alone.
That is at the heart of the objection of Socialists to the system. It is a privileged system. It is built for people who believe in privilege.
I congratulate my hon. Friends on tabling the amendment. It shows that there is unity of opinion on these Benches that we wish, by one means or another, to phase out these iniquitous institutions to which we positively object. [Interruption.] By the noise coming from Conservative Members, we realise how keen they are to defend those rather ridiculous institutions.
Conservative Members argue that it is a question of freedom. It is an argument about freedom, but freedom in this case is exclusively the ability to pay. It is like saying to people in the Third world that they have freedom in the area of access to health, in the event that doctors are available.
That freedom in this instance is dependent on the size of their pockets and whether they can afford the health care that is available.
10 pm
Over the years the Tories have backed the public schools with financial concessions.

What we must do and what I hope we shall increasingly do over the years—I much regret the lack of willingness by the previous Labour Government in this respect—is to intervene in the area of public schools and to introduce changes in taxation and in other areas to phase them out in line with the aspirations of the national Labour Party conference.
Statistics show that with the entry of large numbers of direct grant schools into the public school system as a result of the option offered by the previous Labour Government, an increasingly larger number of children today attend public schools than was the case as little as four years ago.
The charitable status benefits are considerable. They offer a 50 per cent. reduction in rates, and tax exemption which is calculated to be worth £25 million a year. The Independent Schools Information Service—ISIS—assessed that the loss of charitable status and of revenue to the schools which may stem from the loss of such status could lead to an increase of perhaps as little as 5 to 7 per cent. in the fees of those schools. Still, it is a small chip. Eventually the objective will be realised.
I firmly believe that one of the reasons why we have problems in secondary education is that great numbers of people in the army of the British middle class, by buying their way out of the education problems which confront 95 per cent. of the British people and the need to consider such problems for their children, have removed themselves from the central and important area of argument. I hope that when we finally phase out these schools we shall have the pleasure of the company of the British middle class in the secondary education lobby and in our demands for reform in that area.

The Minister of State, Treasury (Mr. Peter Rees): The right hon. Member for Llanelli (Mr. Davies), in moving the amendment, was not his usual robust self. He did it with his characteristic charm but he seemed uncertain about the scope and depth of his amendment. Indeed, he encouraged me—these are his words, not mine—not to pick nits over it.
Even accepting that the amendment is perhaps only a peg for a debate—highly charged at times but, on the whole, fairly good-humoured—as it stands it is ineptly drawn. It perhaps reveals some of the difficulties of the problem to which the Labour Party—not so much my right hon. and hon. Friends—should address itself.
The Labour Party has been in technical difficulties both today and last night. Last night we found that we were debating an Opposition amendment designed—although they had not appreciated it until halfway through the debate—to abolish the investment income surcharge. After a perceptible pause, we were told that it was a probing amendment. T think that it is more important for us to probe the intentions of the Labour Party than for the Opposition to probe the Government's intentions, which are clear for all to see.
I should like to correct one or two misconceptions. First, the right hon. Member for Llanelli ridiculed the whole concept of deeds of covenant. He talked in accents that I found a little curious from one who has had a distinguished legal background. He referred to silly little documents with drips of candle grease. It is not for me to speculate on the difference between a document under seal and a document under hand. I know that my hon. Friend the Member for Grantham (Mr. Hogg) would be happy to enlighten me on that matter. I have momentarily given up these arcane pursuits.
The whole concept of deeds of covenant is deeply embedded in the legal system, quite apart from our fiscal system. The fiscal consequences have been recognised for well over a century and a half. In my view, and, I hope, in the view of many hon. Members on both sides of the Committee, the mere fact that a concept has persisted for 150 or

180 years does not of itself mean that we should necessarily scrutinise it censorially with a view to pulling it apart. Of course, we should review these concepts from time to time, but if a person, by some permanent mechanism, disposes of part of his income, perhaps different tax consequences should obtain if he merely gives it away and is able to retract his generosity at any time.
The right hon. Member for Llanelli may have misled himself and the Committee by saying that it was merely some accident of a statute of Queen Elizabeth I—in fact, it was a statute of 1601—that clothed educational establishments such as Eton—I cannot remember whether it was the right hon. Gentleman who singled out that great establishment of learning—with charitable status. The whole question of charitable status has been reviewed consistently by the courts and refined and enlarged over the centuries. [Interruption.] The right hon. Gentleman correctly murmers " Pemsel's case ". It was a great authority at the end of the last century. But we do not always have to return to the statute of Elizabeth I.
I remind the right hon. Gentleman and the Committee that these establishments should not provide purely for the advancement of learning; they should also provide for the benefit of the community. There cannot be too narrow an establishment. It must be shown to have a broad social purpose if it is to achieve charitable status. The right hon. Gentleman took too narrow and too partisan a view of the problem.
I turn now to the particular difficulties of the amendment. I accept the right hon. Gentleman's disclaimer, but I hope that he will recognise that the difficulties that I and other hon. Members—in particular the hon. Member for Berwick-upon-Tweed (Mr. Beith)—identified show that this is a difficult and delicate area, and that one cannot blunder in in the way—dare I say it—that the hon. Member for Workington (Mr. Campbell-Savours) did. I recognise the deep emotions that gripped him as he spoke, but it is not for this Committee to speculate on the reason why he should have been so moved by this problem. It must lie deeply in his past, and it would probably be indelicate of me to speculate. I do not wish to encourage my hon. Friends to probe the


hon. Gentleman's past. I am sure that it is an honourable and decent past; nevertheless, he seemed to indicate moments of personal distress and anguish, which I shall not dwell on now.
I should like to draw attention to some of the problems of the amendment that we are being asked to debate. It may be a useful peg for a general debate, but from time to time we are obliged to apply ourselves to the words of these amendments. This amendment would strike a far wider group of establishments than merely those that the right hon. Member for Llanelli and his hon. Friends, presumably, would describe as elitist schools in the private sector. It would hit at and disadvantage those who wish to covenant in favour of denominational schools. That is a perfectly intelligible position, but the Labour Party should make it clear if it wishes to attack denominational schools and those who wish to be generous to them. That is not something that has been borne out in speeches from the Opposition Benches.
It would also disadvantage schools supported by the great livery companies in the City of London, many of which are under the general supervision of ILEA and are not designed to benefit children of the more privileged classes. Since the definition of the advancement of education has been considered by the courts to be wide, it would perhaps discourage covenants in favour of some learned societies—for example, the Royal Institution. I do not know. It is not for me to probe the individual circumstances of individual taxpayers and individual bodies. Again, it might even affect certain private libraries, some of which will no doubt come to mind on both sides of the Committee.
Finally, and perhaps most movingly of all—it was the point so ably made by the hon. Member for Berwick-upon-Tweed—it would affect the independent schools for the handicapped. The same point had occurred to me. I had a little research done. The hon. Member mentioned a school in his constituency. Hon. Members on both sides of the Committee will no doubt, with a little thought, call to mind similar schools in their constituencies.
I give some examples: the Lord Mayor Treloar college at Alton, in Hampshire;

Penshurst school; Worcester college for the blind; the Royal West of England school at Exeter for deaf, blind and handicapped children; the Royal Victoria School, Newcastle, for the blind; the Sunshine nursery school for children under 7 years old, blind and handicapped; and the Royal school at Margate for the deaf and handicapped.
I do not know whether each or any one of those has applied for charitable status. I do not happen to know exactly how they would measure up to the rather stringent tests imposed in the amendment.

Mr. Denzil Davies: The hon. and learned Gentleman does not know?

Mr. Rees: Of course I do not know, because it is not for me. This is the kind of confidential information that the right hon. Gentleman, as a former Treasury Minister who has spoken from this Dispatch Box, well knows it would be quite improper for me, unless invited by the school, to ask the Revenue authorities to give me. Like the hon. Member for Berwick-upon-Tweed, I wondered whether the Opposition had seriously thought about the scope of the amendment. Therefore, I searched around to consider the kind of school that would be affected. Perhaps I make the right hon. Gentleman a little uneasy. I hope, therefore, that having considered the arguments, he will not feel obliged to press the amendment to a Division.
The first point that I make to the Committee, and particularly to the hon. Member for Workington, who I know is moved by generous sentiments, is that hon. Members may consider that if they were disposed to support this amendment they might be affecting the prospects of children who attend that class of school.

Mr. Campbell-Savours: Such schools could find a good tax lawyer to get the money back.

Mr. Rees: Perhaps, with a certain amount of professional advice—I shall come to this matter—the effects of this rather ill-judged amendment, if it were to be carried into law against the advice that I shall tender to the Committee, could be mitigated. I shall come to such matters shortly. However, it would be a little haphazard in its operation.
Attention has been drawn to the fact that the older esablishments, which on the whole—one is, of course, generalising—perhaps have larger endowments and greater dependence on investment income and less, perhaps, on covenanted income, might be taken outside the scope of the clause. That is a very curious position. The right hon. Member for Llanelli and his hon. Friends may be able to defend it, but they certainly have not attempted to do so up to now.
Since the hon. Member for Workington draws attention to this point, obviously he has focused his mind on it. It could be circumvented to a degree, because, for instance, as I understand it, not many of the denominational schools have covenants made out in their favour. The covenants are usually made out in favour of the diocesan authorities, and therefore the diocesan authorities could perhaps channel the money to the schools without being caught. [Interruption.] The right hon. Gentleman is now indicating that that point had occurred to him all along, but that is a little disingenuous, because if that were so he would doubtless have made the point, with his customary eloquence, at an earlier stage.

Mr. Denzil Davies: The hon. and learned Gentleman is making very heavy weather of the point. The amendment is drafted, quite clearly, with that in mind, as I pointed out to the hon. Member for Berwick-upon-Tweed (Mr. Beith). That is why the words " by individuals " are specifically included—to exclude payments from a diocesan body and payments from other religious bodies to the schools. This covers only payments specifically made by individuals, and most of the schools that the hon. and learned Gentleman has mentioned would not be caught by the amendment.

Mr. Rees: Let me develop my argument a little further and see whether the right hon. Gentleman has thought of this point. Let us suppose that the hon. Member for Workington, moved by a passion for the poor scholars of Eton college—and I know, therefore, that the hon. Member would be totally disinterested on this point—were to decide that he wanted to make a covenant that would only just exceed three years in favour of the poor scholars of Eton college. He

could probably circumvent the amendment by making the covenant in favour of a general educational trust. The trust could then make a subvention to Eton. The hon. Gentleman encouraged me to speculate on the type of advice that he might receive should he wish to advantage such schools. I think that I am not overstating the case when I say that, in practical terms, the amendment is a little inept.
10.15 pm
The Labour Party has given vent to deplorable prejudices. I had hoped that those prejudices were worked out of the party long ago. I do not know whether this subject was debated at Wembley. A wide range of subjects was covered. If it was not discussed, the Labour Party will no doubt consider it later. We shall then discover how far its thinking on this subject has developed. If the Labour Party adopts a prejudiced attitude instead of a dispassionate, public-tude instead of a dispassionate, public-to draw the Committee's attention to a certain aspect.
The right hon. Member for Llanelli said that if the amendment were carried subsidies would be given to the private sector of education by the taxpayer. That is a misuse of the word " subsidy ". The right hon. Gentleman said that the Government did not give any subsidies to industry. If tax relief is regarded as a subsidy, subsidies are given to industry. Industry gets capital allowances and stock relief. Both this Government and the previous Labour Administration have reserved fiscal subsidies for industry. However, I think that " subsidy" is a misnomer. Tax relief should not be regarded as a subsidy. It provides relief for those who wish to be generous to charity as a whole.
The right hon. Gentleman and his hon. Friends wish to delineate a small area of charity and to deprive donors of tax relief. However, they should reflect on the fact that private schools save the Exchequer £150 million a year, and probably more. Perhaps the right hon. Gentleman is a little reeptical about my figures. Indeed, I see that the hon. Member for Workington is about to leap to his feet. I derived that information from an answer to a parliamentary question given by a member of the previous Labour Administration.

Mr. Campbell-Savours: The issue depends on how that question was phrased.

Mr. Douglas Hogg: An answer is an answer.

Mr. Campbell-Savours: Does that figure take account of the large contribution that is made to public schools on behalf of the children of members of the Diplomatic Corps and those of Service personnel overseas? If it does not, it is not a fair reflection.

Mr. Rees: It is not for me to reflect exactly how the previous Labour Administration constructed that figure. I know why the hon. Member for Workington raised those points. I have also read the articles in the New Statesman. I do not have a reference for the figure. However if the hon. Gentleman wishes to follow up that point I shall write to him and give him the reference. He can then study the question. I cannot recall whether the right hon. Member for Llanelli or the hon. Member for Newcastle-under-Lyme (Mr. Golding) answered the question. No doubt the hon. Gentleman is on intimate terms with whoever was involved and he can ask how the answer was constructed.
The Goodman report has also been invoked by at least one Opposition Member. I derived some support for my propositions from it. I shall paraphrase page 25 of the report. It states that if the private sector of education is abolished, it should be abolished by a clear political decision, not by nibbling away at its charitable status. That is precisely what the amendment seeks to achieve.
I am a little saddened by the prejudices of the Labour Party. Two out of the four leaders of that great party since the war were educated at public schools. It is not for me to compare them with their successors. However, Lord Attlee, who was a distinguished public servant, was proud to have been educated at Haileybury. As far as I know, Mr. Gaitskell was proud to have been educated at Winchester. It is not for me to speculate, but in a matter of months the Labour Party may be led by the prime flower of Westminster school, no less a person than the right hon. Member for Bristol, South-East (Mr. Benn). That is the delightful prospect for Labour Members.
This is an ill-conceived and prejudiced little amendment. All that we seek to do by clause 53 is to offer a modest measure of encouragement to those who wish to be generous to charities. I believe that we deserve the support of the Committee. I am sure that we shall have the support of the country.

Mr. Denzil Davies: The hon. and learned Gentleman's reply was not up to his usual standard. He began by pretending that there was a technical defect in the amendment. However, his reply consisted mostly of knock-about stuff. He could not find a technical defect. He said that some schools would be caught by the amendment. I waited for the long list. He refered to denominational schools. I shuddered slightly, because there are many such schools. However, he could give me no evidence that they would be caught. Bearing in mind the way in which the amendment is drafted, it is unlikely that any of them would be caught by it. I have referred to the let-out for individuals.
The Minister passed from denominational schools to livery schools in the City. He mentioned the Royal Institution and one or two schools. He was never able to substantiate his argument. He was never able to break down the basis of the amendment. The amendment contains two safeguards, namely, 75 per cent. of gross receipts and the gross receipts received by individuals. Those safeguards take out most of the schools for the mentally handicapped and the religious schools.

Mrs. Kellett-Bowman: And Eton.

Mr. Davies: Indeed. I should say that 75 per cent. of Eton's income comes from the fees paid by parents. However, the hon. and learned Gentleman listed only a few schools and he has not been able to break down the basis of the amendment on technical grounds.

Mr. Beith: Mr. Beith rose——

Mr. Davies: The hon. Member for Berwick-upon-Tweed (Mr. Beith) made a long speech on the amendment. He initially said that he was in favour of the spirit of the amendment. He subsequently said that he did not like it at all. If the Liberal Party is concerned about this issue it has a good opportunity


to table an amendment on Report for the House to discuss and debate.

Mr. Beith: On the point that the right hon. Gentleman has just made, which is not the one on which I sought to intervene, I advocated that we should follow up the recommendations made by the Home Office Sub-Committee of the Expenditure Committee. Those recommendations involved far wider considerations, which could not have been dealt with by the Bill. The Minister and I are concerned about schools that have endowment income exceeding 25 per cent. of total income. The strongest endowed schools would be most likely to be excluded from the penalties contained in the amendment.

Mr. Davies: There may well be schools with that high endowment income. I accept that entirely. However, that argument was not really advanced by the Minister. He has all the assistance of the Inland Revenue behind him, but he did not make that point. That is a difficulty that can be overcome.
The amendment covers most public schools. It does not catch denominational schools, religious schools, or most of the schools for the mentally handicapped and disabled, because of the let-out. The Minister was not able to break down the amendment. Therefore, he resorted to the familiar tactics of Treasury Ministers in this Government when they have a weak case, namely, to utter some good knock about stuff about leaders of the Labour Party special conferences, and the various ancillary matters.

Mrs. Kellett-Bowman: But all true.

Division No. 333]
AYES
[10.26 pm


Allaun, Frank
Cowans, Harry
Fitch, Alan


Archer, Rt Hon Peter
Crowther, J. S.
Flannery, Martin


Armstrong, Rt Hon Ernest
Cryer, Bob
Fletcher, Ted (Darlington)


Ashley, Rt Hon Jack
Cunliffe, Lawrence
Foot, Rt Hon Michael


Atkinson, Norman (H'gey, Tott'ham)
Dalyell, Tam
Forrester, John


Bagler, Gordon A. T.
Davies, Rt Hon Denzll (Llanelli)
Foster, Derek


Bennett, Andrew (Stockport N)
Davis, Terry (B'rm'ham, Stechford)
Freeson, Rt Hon Reginald


Booth, Rt Hon Albert
Dempsey, James
Garrett, John (Norwich S)


Bray, Dr Jeremy
Dewar, Donald
Grant, George (Morpeth)


Brown, Hugh D. (Provan)
Dixon, Donald
Grant, John (Islington C)


Brown, Robert C. (Newcastle W)
Dobson, Frank
Hamilton, James (Bothwell)


Buchan, Norman
Dormand, Jack
Hamilton, W. W. (Central Fife)


Callaghan, Rt Hon J. (Cardiff SE)
Douglas-Mann, Bruce
Harrison, Rt Hon Walter


Callaghan, Jim (Middleton & P)
Dubs, Alfred
Haynes, Frank


Campbell-Savours, Dale
Duffy, A. E. P.
Heffer, Eric S.


Canavan, Dennis
Dunn, James A. (Liverpool, Kirltdale)
Hogg, Norman (E Dunbartonshire)


Carmlchael, Neil
Dunwoody, Mrs Gwyneth
Holland, Stuart (L'beth, Vauxhall)


Clark, Dr David (South Shields)
Eadie, Alex
Hooley, Frank


Cocks, Rt Hon Michael (Bristol S)
Eastham, Ken
Horam, John


Concannon, Rt Hon J. D.
Evans, John (Newton)
Hudson Davies, Gwllym Ednyfed


Conian, Bernard
Ewing, Harry
Hughes, Robert (Aberdeen North)


Cook, Robin F.
Field, Frank
Janner, Hon Greville

Mr. Davies: This is a modest clause and a modest amendment. There is nothing grand about them. The hon. Member for Grantham (Mr. Hogg) became terribly excited. We are saying that there can still be deeds of covenant, and that they can still be made to Eton. All that we are saying is that there cannot be tax relief.
We are talking merely of tax relief on deeds of covenant. Why should there be tax relief? The hon. and learned Gentleman spoke of permanent dispositions of income, but three years is not a long time. There was some rationale for seven years. Perhaps the period should be 10 years. However, having reduced it to three years, the Government may further reduce it to two next year. The hon. and learned Gentleman cannot shield behind a bogus argument about permanent dispositions of income.
A deed of covenant is merely a technical matter. Why should a person who makes a deed of covenant under seal receive tax relief when a person who makes a deed of covenant not under seal does not?
The amendment covers most of our points. We are not debating the virtues of public school education. We merely argue that the taxpayer should not help support such organisations. Let them stand on their own feet, as the Government keep telling everyone else to do.

Question put, That the amendment be made:—

The House divided: Ayes 129, Noes 177.

Jay, Rt Hon Douglas
Morton, George
Strang, Gavin


John, Brynmor
Newens, Stanley
Thomas, Dafydd (Merioneth)


Johnson, Walter (Derby South)
O'Halloran, Michael
Thomas, Jeffrey (Abertillery)


Jones, Barry (East Flint)
Palmer, Arthur
Thomas, Dr Roger (Carmarthen)


Jones, Dan (Burnley)
Parry, Robert
Watkins, David


Kerr, Russell
Prescott, John
Welsh, Michael


Kilfedder, James A.
Richardson, Jo
White, Frank R. (Bury & Radcliffe)


Lambie, David
Roberts, Albert (Normanton)
Whitehead, Phillip


Leighton, Ronald
Roberts, Ernest (Hackney North)
Whitlock, William


Lewis, Ron (Carlisle)
Robertson, George
Wigley, Dafydd


Litherland, Robert
Robinson, Geoffrey (Coventry NW)
Williams, Rt Hon Alan (Swansea W)


Lyons, Edward (Bradford West)
Rooker, J. W.
Wilson, Gordon (Dundee East)


McCartney, Hugh
Sever, John
Wilson, William (Coventry E)


McKay, Alen (Penistone)
Silkin, Rt Hon John (Deptford)
Winnick, David


MacKenzie, Rt Hon Gregor
Silverman, Julius
Woodall, Alec


Maclennan, Robert
Skinner, Dennis
Woolmer, Kenneth


Marshall, Dr Edmund (Goole)
Snape, Peter
Wrigglesworth, lan


Mellish, Rt Hon Robert
Soley, Clive
Young, David (Bolton East)


Mikardo, Ian
Spriggs, Leslie



Millan, Rt Hon Bruce
Stewart, Rt Hon Donald (W Isles)
TELLERS FOR THE AYES:


Mitchell, Austin (Grimsby)
Stoddard, David
Mr. John Coleman and


Morris, Rt Hon Alfred (Wythenshawe)
Stott, Roger
Mr. James Tinn.


Morris, Rt Hon Charles (Openshaw)






NOES


Alexander, Richard
Garel-Jones, Tristan
Mitchell, David (Basingstoke)


Alton, David
Goodlad, Alastalr
Moate, Roger


Ancram, Michael
Gorst, John
Molyneaux, James


Arnold, Tom
Gow, Ian
Morrison, Hon Charles (Devizes)


Aspinwall, Jack
Gower, Sir Raymond
Morrison, Hon Peter (City of Chester)


Baker, Nicholas (North Dorset)
Gray, Hamish
Mudd, David


Beith, A. J.
Greenway, Harry
Murphy, Christopher


Bendall, Vivian
Griffiths, Peter (Portsmouth N)
Nelson, Anthony


Benyon, Thomas (Abingdon)
Grylls, Michael
Page, Rt Hon Sir R. Graham


Benyon, W. (Buckingham)
Gummer, John Selwyn
Page, Richard (SW Hertfordshire)


Berry, Hon Anthony
Hamilton, Hon Archie (Eps'm&Ew'II)
Parkinson, Cecil


Best, Keith
Hannam, John
Parris, Matthew


Bevan, David Gilroy
Haselhurst, Alan
Patten, Christopher (Bath)


Bitten, Rt Hon John
Hawksley, Warren
Pattie, Geoffrey


Biggs-Davjson, John
Heseltine, Rt Hon Michael
Penhaligon, David


Blackburn, John
Hicks, Robert
Pink, R. Bonner


Blaker, Peter
Higgins, Rt Hon Terence L.
Pollock, Alexander


Boyson, Dr Rhodes
Hogg, Hon Douglas (Grantham)
Porter, George


Braine, Sir Bernard
Holland, Philip (Carlton)
Price, David (Eastleigh)


Bright, Graham
Hooson, Tom
Proctor, K. Harvey


Brinton, Tim
Howells, Geraint
Rees, Peter (Dover and Deal)


Brocklebank-Fowler, Christopher
Hunt, John (Ravensbourne)
Rees-Davies, W. R.


Brooke, Hon Peter
Hurd, Hon Douglas
Renton, Tim


Brown, Michael (Brigg & Sc'thorpe)
Johnson Smith, Geoffrey
Rhodes James, Robert


Browne, John (Winchester)
Johnston, Russell (Inverness)
Rhys Williams, Sir Brandon


Bruce-Gardyne, John
Jopling, Rt Hon Michael
Rifkind, Malcolm


Budgen, Nick
Kellett-Bowman, Mrs Elaine
Roberts, Michael (Cardiff NW)


Bulmer, Esmond
King, Rt Hon Tom
Rossi, Hugh


Cadbury, Jocelyn
Kitson, Sir Timothy
Rost, Peter


Carlisle, John (Luton West)
Langford-Holt, Sir John
Royle, Sir Anthony


Carlisle, Kenneth (Lincoln)
Lawson, Nigel
Sainsbury, Hon Timoihy


Carlisle, Rt Hon Mark (Runcorn)
Le Marchant, Spencer
St. John-Stevas, Rt Hon Norman


Clark, Sir William (Croydon South)
Lennox-Boyd, Hon Mark
Shelton, William (Streatham)


Clarke, Kenneth (Rushcliffe)
Lester, Jim (Beeston)
Shepherd, Colin (Hereford)


Cockeram, Eric
Lloyd, Peter (Fareham)
Silvester, Fred


Costain, A. P.
Loveridge, John
Sims, Roger


Critchley, Julian
Luce, Richard
Skeet, T. H. H.


Dean, Paul (North Somerset)
Lyell, Nicholas
Speller, Tony


Dickens, Geoffrey
McCrindle, Robert
Squire, Robin


Dorrell, Stephen
Macfarlane, Neil
Steal, Rt Hon David


Douglas-Hamilton, Lord James
MacGregor, John
Steen, Anthony


Dover, Denshore
MacKay, John (Argyll)
Stevens, Martin


Dunn, Robert (Dartford)
McNair-Wilson, Michael (Newbury)
Stewart, Ian (Hitchin)


Dykes, Hugh
Madel, David
Stewart, John (East Renfrewshire)


Eden, Rt Hon Sir John
Major, John
Stradling Thomas, J.


Fairbairn, Nicholas
Marlow, Tony
Taylor, Teddy (Southend East)


Faith, Mrs Sheila
Mates, Michael
Thatcher, Rt Hon Mrs Margaret


Farr, John
Mather, Carol
Thompson, Donald


Fenner, Mrs Peggy
Maude, Rt Hon Angus
Thorne, Nell (llford South)


Fisher, Sir Nigel
Mawhinney, Dr Brian
Thornton, Malcolm


Fletcher, Alexander (Edinburgh N)
Maxwell-Hyslop, Robin
Townend, John (Bridlington)


Fletcher-Cooke, Charles
Mellor, David
Viggers, Peter


Forman, Nigel
Meyer, Sir Anthony
Waddington, David


Fowler, Rt Hon Norman
Miller, Hal (Bromsgrove & Redditch)
Wakeham, John


Fraser, Rt Hon H. (Stafford & St)
Mills, lain (Meriden)
Walker, Bill (Perth & E Perthshire)


Fraser, Peter (South Angus)
Mills, Peter (West Devon)
Waller, Gary


Gardiner, George (Reigate)
Miscampbell, Norman
Ward, John







Watson, John
Wiggin, Jerry
TELLERS FOR THE NOES


Wheeler, John
Wolfson, Mark
Mr. John Cope and


Whitney, Raymond
Young, Sir George (Acton)
Mr. Tony Newton.

Amendment accordingly negatived.

Clause 53 ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. Biffen.]

Committee report Progress; to sit again tomorrow.

ADJOURNMENT

Resolved, That this House do now adjourn.—[Mr. Waddington.]

Adjourned accordingly at twenty-two minutes to Eleven o'clock.